how much will you accummulate by the time you reach 60

Business & Finance
Tutor: None Selected Time limit: 1 Day

At 30 years old and you want to retire at 60,with a annual income of $72,000. If you live to be 90, how much will you accumlate by the time you reach 60. At 8% annually.

Oct 25th, 2015

Thank you for the opportunity to help you with your question!

Thus problem is related to compound interest calculations, but with a twist: regular withdrawals are to be taken into account and they will reduce the principal over the years. The problem consist in determining which is the principal - P or P(0) - that one should have accumulated at age 60 in order to retire an live up to 90 (that is, the period is 30 years) with yearly withdrawals of 72000. A fixed yearly interest rate of 8% (or 0.08 if expressed in decimals) is considered. After 30 years (age 90) the accumulated savings should be zero.

After the first year, the total amount of savings is P(1)=P(0)*(1+0.08)^1-72000

This can be generalized for any given time period as P(n)=(P(0)*(1+0.08)^n) - ((1.08^n)-1)(72000/0.08)

The answer to the problem can be found by solving for n=30 and P(n)=0

It is possible to find P(0)=$ 810565, according to rounding up or down during calculations.

This calculation considers, for the sake of simplicity, one yearly credit of interests (8%) and a single yearly withdrawal of $72000. Also, interests are calculated as credited at the end of 30th year.

Please let me know if you need any clarification. I'm always happy to answer your questions.
Oct 25th, 2015

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Oct 25th, 2015
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Oct 25th, 2015
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