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You wish to retire in 14 years, at which time you want to have accumulated enough money to...

Question:

You wish to retire in 14 years, at which time you want to have accumulated enough money to receive an annual annuity of $17,000 for 19 years after retirement. During the period before retirement, you can earn 8 percent annually, while after retirement you can earn 10 percent on your money. What annual contributions to the retirement fund will allow you to receive the $17,000 annuity?

Saving for retirement

Saving for retirement and then withdrawing funds from an account in retirement can be viewed as two separate annuities.

Answer and Explanation: 1

We wish to receive $17000 for 19 years during retirement. We need to solve for the present value of this sum at the beginning of retirement. We can use a financial calculator to solve for this:

PMT=17000

N=19

I=10

FV=0

PV=??

PV=$142,203.64

We need $142,203.64 at the start of retirement.

We will be saving annually for 14 years, earning 8%, to reach $142,203.64.

FV 142203.64

PV 0

PMT=???

I=8

N=14

PMT=$17,248.85

We need to save $17,248.85 to achieve our objective.

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How to Find the Value of an Annuity

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Chapter 21 / Lesson 15
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An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.


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