Judy is 30 years old and wants to retire for her retirement

Judy is 30 years old and wants to retire for her retirement. If Judy can earn an interest rate of 8% annually, she has to invest how much today to have the $1 million when she is 55 years old? when she is 50. She believes that $1 million will be sufficier So Continuation of the above problem.. If Judy plans to live until the age of 70, how much can she withdraw from retirement account eac year, assuming she continues to earn the 8% return on her investments?

Solution

Answer a.

Required Fund at retirement = $1,000,000
Time to Retirement = 20 years
Annual Interest Rate = 8%

Amount Invested * (1 + i)^n = Required Fund
Amount Invested * (1 + 0.08)^20 = $1,000,000
Amount Invested * 4.66096 = $1,000,000
Amount Invested = $214,548.21

So, Judy has to invest $214,548.21 today to have $1 million after 20 years.

Answer b.

Retirement Fund = $1,000,000
Annual Interest Rate = 8%
Period after retirement = 20 years

Annual Withdrawal * PVIFA(8%, 20) = $1,000,000
Annual Withdrawal * (1 - (1/1.08)^20) / 0.08 = $1,000,000
Annual Withdrawal * 9.81815 = $1,000,000
Annual Withdrawal = $101,852.21

So, Judy can withdraw $101,852.21 per year after retirement.