based on 12 years until retirement of 67 present age 55 calc

based on 12 years until retirement of 67, present age 55, calculate the monthly savings required to build a portfolio of $500,000. Assume you are starting with aero savings, can earn 6 percent a year, and that you start saving on the first of each month. What if you could earn 9 percent a year but wanted to save $750,000-what would you need to deposit into savings monthly?

Solution

We can use future value of annuity due formula to calculate monthly savings The formula is as under, FV of annuity due = (1+r) x P{[(1+r)^n -1]/r} FV of annuity due i.e.future value = $750000 P = monthly savings = ? r = rate of interest per month = 9%/12 = 0.0075 n = number of months = 12 years * 12 = 144 750000 = (1+0.0075) x P{[(1+0.0075)^144 -1]/0.0075} 750000 = 1.0075 x P(257.7116) 744416.87 = P(257.7116) P = 2888.57 Monthly savings = $2888.57