Nora is planning for retirement

Finance Nov 27, 2020

Nora is planning for retirement. She’d like to retire on her 65th birthday, and then be able to withdraw $45,000 on each following birthday for the next 25 years. She makes yearly deposits starting on her 42th birthday and continuing until her 65th birthday (right before she retires). Her investment accounts earn 5% annual effective interest. How much should her yearly deposits be? Show all work.

Expert Solution

Step 1: Find the amount required on retirement

Annuity=45000

rate=r=5%

n=25

PV of annuity= A*(1-1/(1+r)^n)/r

=45000*(1-1/(1+5%)^25)/5%

=45000*14.09394457

=$634,227.51

Step 2: To get the above value, find annuity required

FV= $634,227.51

rate=r=5%

n= 65-42+1 = 24

FV of annuity= A* ((1+rate)^n-1)/rate

634,227.51= A*((1+5%)^24-1)/5%)

634,227.51=A*44.50199887

A= $14,251.66

Finalanswer=$14,251.66

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