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Calculate the present value of the retirement annuity

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Reference no: EM132466032

Problem: Kelly, age 40 wants to retire at age 65 and currently has no savings. At age 65 Kelly wants enough money to purchase a 30 year annuity that will pay $5,000 per month. Monthly payments should start one month after she reaches age 65. Today Kelly has accumulated retirement savings of $230,000. Assume a 4% annual rate of return on both the fixed term annuity and on her savings. How much will she have to save each month starting one month from now to age 65 in order for her to reach her retirement goal?

How Much will the Fixed Term Annuity Cost at age 65?

Steps in Solving the Comprehensive Retirement Problem

  • Calculate the present value of the retirement annuity as at Kelly's age 65.
  • Estimate the value at age 65 of her current accumulated savings.
  • Calculate gap between accumulated savings and required funds at age 65.
  • Calculate the monthly payment required to fill the gap.

Reference no: EM132466032

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