Mary wants to retire in 40 years with 1 million in her retir

Mary wants to retire in 40 years with $1 million in her retirement account. To that end she decides to save money every year in a savings plan that pays 9.0 percent annually. Her first contribution will occur at the end of the year (one year from today). She needs to save $__________ each year to the savings plan. Round it to two decimal places and do not include the $ sign, e.g., 1234.56.

Solution

The question is based on the concept of future value of annuity. Annual saving = Estimated amount in retirement account/Future value of annuity of 1 = $       10,00,000 / 337.88245 = $          2,959.61 Working: Future Value of annuity of 1 = (((1+i)^n)-1)/i Where, = (((1+0.09)^40)-1)/0.09 i 9.0% = 337.88245 n 40 Thus, She needs to save each year $ 2,959.61