Your aunt heard that you are studying finance this term. She has asked your advice on how much she needs to save to meet the retirement needs. You have considered your aunt’s situation, she has just celebrated her 40th birthday and plans to retire in 20 years. She wants to be able to withdraw the amount of $25,540 (Annual withdrawal for retirement needs), at the end of each year from an account throughout her retirement. She expects to live 30 years beyond retirement. The first withdrawal will occur on her 61st birthday. Assume all savings earn an annual rate of return 4.5% (savings account interest rate).

1. a) What is the present value of the retirement needs at today?

2. b) What equal, annual, end-of-year amount must your aunt save for each year in the next 20 years to meet the retirement needs?

Answer rating: 100% (QA)

To answer your aunts retirement savings questions we need to use the concept of present value and an... View the full answer