SOLUTION: You are trying to plan for retirement in 20 years and currently have $85,000 in a savings account and $25,000 in a mutual fund. In addition you plan on adding to your savings accou
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Question 752040: You are trying to plan for retirement in 20 years and currently have $85,000 in a savings account and $25,000 in a mutual fund. In addition you plan on adding to your savings account by depositing $1,500 at the end of each month for the next five years then $35,000 at the end of each year for the final fifteen years until retirement.
a) Assuming your savings account returns 4 % (compounded semi-annually) while your mutual fund will return 9 % (compounded monthly). How much will you have saved (in total) at the end of 20 years?
b) If you expect to live for 30 years after you retire and at retirement you deposit all of your savings (including the value of the mutual fund) into an account paying 7% (compounded annually), how much can you withdraw at the beginning of each month?
For part (a) should I have two cash flows one for the mutual fund and one for savings account? and then calculate the future value for each cash flow? Answer by solver91311(24713) (Show Source):
Just because I subscribe to the KISS (Keep It Simple Stupid) theory of problem solving, I would use three cash flow calculations. First the initial 5 years of 1500/month into the savings. Then, using the results of that calculation as the Present Value for the $35K/year for 15 years calculation. That gets you the future value for the savings at the 20 year point. Then just add that to the compouded interest in the Mutual Fund.
John
Egw to Beta kai to Sigma
My calculator said it, I believe it, that settles it
