You plan to save $600 per month for the next 40 years until you retire. After you retire you want to withdraw $250,000 per year for 30 years. If you expect to earn 6% after retirement, what annual rate will you need to earn until you retire to meet your goal?

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Davin

12 August, 14:29

You plan to save $600 per month for the next 40 years until you retire. After you retire you want to withdraw $250,000 per year for 30 years. If you expect to earn 6% after retirement, what annual rate will you need to earn until you retire to meet your goal?

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Aydan · Answer 1

The question is solved by first calculating the amount saved for retirement.

Enter the below in a financial calculator to compute the present value:

PMT = - 250,000

N = 30

I/Y = 6

Press the CPT key and PV to compute the present value.

The value obtained is 3,441,207.79.

Therefore, the amount saved at the time of retirement is $3,441,207.79.

The annual interest rate needed to meet the retirement goal is computed by entering the below in a financial calculator:

FV = 3,441,207.79

N = 40 years*12 = 480 months

PMT = 600

Press the CPT key and I/Y to compute the interest rate.

The monthly interest is 0.8065.

Therefore, the annual interest rate is 0.8065%*12 = 9.6777%

= 9.68%