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A couple will retire in 50 years; they plan to spend about $30,000 a year in retirement, which should last about 25 years
A couple will retire in 50 years; they plan to spend about $30,000 a year in retirement, which should last about 25 years. They believe that they can earn 8% interest on retirement savings.
If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Expert Solution
First, We calculate Present Value using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Present Value = ?
Rate = 8%
Nper = 25 Years
PMT = $30,000
FV = 0
Substituting the values in formula:
=-pv(8%,25,30000,0)
PV or Present Value = $320,243.29
Now, We will consider this Present Value as Future Value.
Computation of Savings Each Year using PMT Function in Excel:
=pmt(rate,nper,pv,-fv)
Here,
PMT = Savings Each Year = ?
Rate = 8%
Nper = 50 Years
PV = 0
FV = $320,243.29
Substituting the values in formula:
=pmt(8%,50,0,-320243.39)
PMT or Savings Each Year = $558.14
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