You have just turned 30 years old, have just received your MBA, and have accepted your first job. Now you must decide how much money to put into your retirement plan. The plan works as follows:
Every dollar in the plan earns 7% per year. You cannot make withdrawals until you retire on your 60th birthday. After that point, you can make withdrawals as you see fit.
You decide that you will plan to live to 100 and work until you turn 60. You estimate that to live comfortably in retirement, you will need $94,000 per year starting at the end of the first year of retirement and ending on your one hundredth birthday.
You will contribute the same amount to the plan at the end of every year that you work. How much do you need to contribute each year to fund your retirement?
The value of the annuity is:
The annual deposit is: