Ross has decided that he wants to build enough retirement wealth that, if invested at 8% per...

Question:

Ross has decided that he wants to build enough retirement wealth that, if invested at 8% per year, it will provide him with $4,400 of monthly income for 30 years. To date, he has saved nothing, but he still has 23 years until he retires. How much money does he need to contribute per month to reach his goal?

Retirement Needs:

The financial needs of an individual upon retirement can be estimated using his/her spending habits before retirement. Typically, an individual's retirement needs are 50-80% of his/her current needs. The reason is that many expenses, like mortgage payments and childcare, do not exist after retirement.

Answer and Explanation: 1

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Let,

  • r = interest rate = 8% / 12 = 0.667%
  • M = monthly income post retirement = $4,400
  • k = number of spending periods = 30 * 12 = 360
  • n = number of...

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How to Find the Value of an Annuity

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Chapter 21 / Lesson 15
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An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.


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