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NPV and annuities: how much must be saved to plan for retirement

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Assume that you are planning on how much you need to save for retirement. You expect to live for 30 years in retirement and would like to spend $100,000 (in real terms) per year, while leaving a $1,000,000 bequest to the International Red Cross. You are 35 years away from retirement. How much do you need to save at the end of each year if you earn 5% real (i.e., after inflation) during your working years and 3% during your retirement years?

** Solve the problem in 2 different ways: by using a spreadsheet; by using the formulas for the present value of an annuity and for a loan payment.**

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Solution Summary

The solution shows all the calculations to arrive at the correct answer in two formats. How much must be saved to plan for retirement is determined.

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First calculate the value of money required at the end of 35 years to sustain the expenditure after retirement.
We have two streams of cash flow. One is annuity of $100,000 every year with discount rate of 3%. One time payment of $1000,000.

Value of ...

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