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Determining savings to meet a financial target at retirement

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John is saving for his retirement. Today is his 40th birthday. John first started saving when he was 25 years old/ on his 25th birthday; John made the first contribution to his retirement account; he deposited $2,000 into an account which paid 9 percent interest, compounded monthly. Each year on his birthday, John contributes another $2,000 to the account. The 15th (and last) contribution was made last year on his 39th birthday.

John wants to close the account today and move the money to a stock fund which is expected to earn an effective return of 12 percent a year. John's plan is to continue making contributions to this new account each year on his birthday. His next contribution will come today (age 40) and is final planned contribution will be on his 65th birthday. If John wants to accumulate $3,000,000 in his account by age 65, how much must he contribute each year until age 65 (26 contributions in all) to achieve his goal?

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Solution Summary

Solution describes the formulas and steps to find monthly savings to meet the given financial target at retirement.

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Solution:

Let us first calculate effective rate of interest in his ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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