Question
Simon wishes to have $400,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump sum deposit today.
How much would Simon need to have on deposit at retirement in order to withdraw $35,000 annually over the 15 years if the retirement funds earns 8
%?
How much would Simon need to have on deposit at retirement in order to withdraw $35,000 annually over the 15 years if the retirement funds earns 8
%?
Answers
You have conflicting information.
At the beginning of his "retirement period" he will need:
35000( 1 - 1.08^-15)/.08
= 299,581.75
so he would not need $400,000 at that time.
To assure that he will have that $299,581.75 available 20 years from now , he needs a present deposit of
299581.75(1.08)^-20
or
$ 64,274.73
If he wanted $400,000 twenty years from now he would have to make a deposit now of
400,000(1.08)^-20
or $85,819.28
This would supply him with quite a bit more to withdraw annual payments.
Let that payment be P
solve:
400,000 = P( 1 - 1.08^-15)/.08
P = $ 46,731.82
At the beginning of his "retirement period" he will need:
35000( 1 - 1.08^-15)/.08
= 299,581.75
so he would not need $400,000 at that time.
To assure that he will have that $299,581.75 available 20 years from now , he needs a present deposit of
299581.75(1.08)^-20
or
$ 64,274.73
If he wanted $400,000 twenty years from now he would have to make a deposit now of
400,000(1.08)^-20
or $85,819.28
This would supply him with quite a bit more to withdraw annual payments.
Let that payment be P
solve:
400,000 = P( 1 - 1.08^-15)/.08
P = $ 46,731.82