Mary's 25th birthday is today, and she hopes to retire on her 65th birthday. She has determined that she will need to have $3,000,000 in her retirement savings account in order to live comfortably. Mary currently has no retirement savings, and her investments will earn 4% annually.

a. How much must she deposit into her account at the end of each of the next 40 years to meet her retirement savings goal?

Question

Business

Ellen Mercer

22 September, 07:00

Mary's 25th birthday is today, and she hopes to retire on her 65th birthday. She has determined that she will need to have $3,000,000 in her retirement savings account in order to live comfortably. Mary currently has no retirement savings, and her investments will earn 4% annually.

a. How much must she deposit into her account at the end of each of the next 40 years to meet her retirement savings goal?

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Answers (1)

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Ariel Mejia · Answer 1

Annual deposit = $31,570.47

Explanation:

Giving the following information:

She has determined that she will need to have $3,000,000 in her retirement savings account.

Her investments will earn 4% annually.

To calculate the annual deposit we need to use the following formula:

FV = {A*[ (1+i) ^n-1]}/i

A = annual deposit

Isolating A:

A = (FV*i) / {[ (1+i) ^n]-1}

A = (3,000,000*0.04) / [ (1.04^40) - 1] = $31,570.47