You are planning to retire in twenty years. You'll live ten years after retirement. You want to be able to draw out of your savings at the rate of $10,000 per year. How much would you have to pay in equal annual deposits until retirement to meet your objectives? Assume interest remains at 9%
First, let's calculate the present value (in 10 years) of the total amount needed to withdraw after the retirement.
PV = 10,000 (PVoP, 0.09, 10) = $64,176.58.
Then, let's calculate how much is needed to save per year to meet this value in 20 year’s time.
A = 64,176.58 (PMT, 0.09, 20) = $1,254.43.