When you finally retire, you want to be able to draw from an account an annual salary of $100,000 for 20 years. Approximately how much should be in your account that has an APR of 5% when you retire, such that you can draw an annual salary of $100,000? Assume an ordinary annuity.

a.

$62,000

c.

$1,310,000

b.

$1,250,000

d.

$3,000,000

Question

Mathematics

Lilia Sheppard

4 May, 21:28

When you finally retire, you want to be able to draw from an account an annual salary of $100,000 for 20 years. Approximately how much should be in your account that has an APR of 5% when you retire, such that you can draw an annual salary of $100,000? Assume an ordinary annuity.

a.

$62,000

c.

$1,310,000

b.

$1,250,000

d.

$3,000,000

+2

Answers (1)

Know the Answer?

Kai · Answer 1

PV = P (1 - (1 + r) ^-n) / r; where P is the periodic withdrawal = $100,000; r = rate = 5% = 0.05; n = number of periods = 20 years.

PV = 100000 (1 - (1 + 0.05) ^-20) / 0.05 = 100000 (1 - 1.05^-20) / 0.05 = 100000 (1 - 0.3769) / 0.05 = 100000 (0.6231) / 0.05 = 100000 (12.4622) = 1,246,221 ≈ $1,250,000