Question

Suppose you retire at age 70. You expect to live 20 more years and to spend $55,000 a year during your retirement.How much money do you need to save by age 70 to support this consumption plan? Assume an interest rate of 7 percent.

Answer 1

Answer:

individual he need save = $582.670

Explanation:

given data

time = 20 year

spend = $55,000

interest rate = 7 percent = 0.07

solution

we get here first  annuity factor that is express as

annuity factor = $\frac{1}{rate} -\frac{1}{rate*(1+rate)^{time}}$   .........1

put here value

annuity factor = $\frac{1}{0.07} -\frac{1}{0.07*(1+0.07)^{20}}$

annuity factor =  10.59%  

and here individual he need save will be

individual he need save = $55,000 × 10.59%

individual he need save = $582.670