Sally Mander is planning on retiring in 30 years and she wan

Sally Mander is planning on retiring in 30 years and she wants to play it safe. So, Sally would like to set up a retirement plan that will pay herself a fixed amount forever. Assuming 9% interest and annual deposits of $8000 over the next 30 years that she is working, and 5% interest forever after she retires, how much will Sally receive annually once she retires?

$57,885

$61,340

$54,524

$59,023

Solution

Let the annual amount received after retirement be X. Assume we are looking at the time when Sally is retiring, that is, after 30 years. The amount accumulated so far is computed as 8000(F/A, 9%, 30) = 1090460.31

The present worth of the annual amount received forever is A/i = A/5% which is 20A

Hence the required annual amount received after retirement is 1090460.31/20 = $54,523

Correct option is third option.