An individual wants to be able to spend €80,000 per year for an anticipated 25 years in retirement.To fund this retirement account, he will make annual deposits of €6,608 at the end of each of his working years. He can earn 6% compounded annually on all investments. The minimum number ofdeposits that are needed to reach his retirement goal is closest to:
The following figure represents the timeline for the problem:
Using a financial calculator, the funds needed at retirement (R on the timeline) are calculated: N =25, I/Y = 6%, PMT = €80,000, Future value (FV) = €0; Mode = End.The calculated present value(PV) is €1,022,668.
Then, €1,022,668 is used as the FV (at R on the timeline) for the accumulation phase annuity as per: I/Y = 6%, PV = €0, PMT = €6,608, FV = €1,022,668; Mode = End. The computed N is 40.
Alternatively,40 could be calculated with the formula:
