You start working at age 20 and you plan to deposit $5,000 in a saving

You start working at age 20 and you plan to deposit $5,000 in a savings account every year for the next 45 years. a. At the end of this time, how much money will you have if the interest rate is 5%? b. You decide that’s not enough money.

How much will you have to save every year if you wish to have $1,000,000 when you retire?

ANSWER

a. FV = 5,000 {((1 + i)n – 1)/ i } = $798,500
b. You will have to save $6,261 per year.