An individual is currently 30 years old, wants to work until the age of 65 and plans on dying at the age of 85. How much will the individual need to have saved by the time he or she is 65 if he or she plans on spending $40,000 per year while retired? You can assume the individual can earn an interest rate of 5.0% and the $40,000 is in addition to any Social Security that may be received.

What will be an ideal response?


We can use a financial calculator to determine that in order to determine that the individual will need to amass a fund of $498,488 at the time he/she plans on retiring to obtain $40,000 a year for 20 years. Now since the individual has 35 years to amass this fund, this will require him/her to set aside $5,519 each year for 35 years.

Economics

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