Retirement Savings: Calculating Monthly Contributions for Future

This assignment focuses on calculating the necessary monthly contributions to a retirement savings account to ensure a comfortable life post-retirement. The student calculates the monthly contributions required to generate a specific annual income ($18,000, equivalent to $1500 per month) without depleting the principal, considering different retirement ages (65 and 69) and interest rates (3.5% and 4%). The calculations involve determining the total balance needed at retirement and then using a formula to compute the required monthly payment (PMT). The assignment concludes by recommending delaying retirement by four years due to the lower monthly contribution required in that scenario. The student has also cited bibliography for the research work. Desklib offers students access to this and similar assignments to aid in their studies.

Running head: SAVING FOR RETIREMENT
Saving for Retirement
Name of Student:
Name of University:
Author’s Note:

1SAVING FOR RETIREMENT
Table of Contents
Answer to First Problem..................................................................................................................2
Answer to Part 1..............................................................................................................................2
Answer to Part 2..............................................................................................................................2
Answer to Part 3..............................................................................................................................2
Answer to Second Problem.............................................................................................................4
Bibliography....................................................................................................................................6

2SAVING FOR RETIREMENT
Answer to First Problem
Answer to Part 1
My present age is 40 years and my expected date of retiring is at the age of 65 from
Navy. So, I have 25 years until my retirement.
Answer to Part 2
After my retirement I intend for leading a comfortable life and there will be some sources
of retirement income.
I am estimating that I will need to draw about 50,000 from that account yearly.
Answer to Part 3
Following the retirement every year I will be receiving a monthly retirement check of $
1500. This is 1500x12 = $ 18,000 for life.
As per the given case the new retirement savings account earns interest at 3.5%
So, APR= 3.5% or 0.035 as a decimal, this will be considered as constant
Following the retirement Plan there are 25 years until I retire
I will start with:
18000= 0.035 (Total Balance)
18000/0.035 = Total Balance
Total Balance = $ 514286
Formula used to compute Regular Payment deposit amount
PMT= A x (APR/n)/ ((1 + APR/n)(ny) -1)

3SAVING FOR RETIREMENT
A= $ 514286 (The required amount)
APR= 3.5% or 0.035
n= 12 Number of monthly contributions in a year
y= 25 The number of years until retirement
Now to find the required payment we need to compute:
PMT= 514286 x (0.035/12)/ ((1 + 0.035/12)(12x25)-1)
PMT = 1075
Based on these calculations I need to contribute $ 1075 every month before I retire, for
providing me $ 1500 p.m., which I am looking for without depleting principle.
A Accumulated Savings Plan
PMT Regular Payment deposit amount
APR Annual Percentage Rate
n
Number of payment periods per
year
y Number of Months
Calculation of Regular Payment Deposit Amount for First
Scenario
Total Months 12
Monthly Cheque from Navy 1500
Total Yearly Withdrawal 18000
Interest Rate 3.50%
APR 0.29%
No. of years until retirement 25
ny 300
Total Balance (A) 514286
PMT A x (APR/n)/ ((1 + APR/n)(ny) -1)

4SAVING FOR RETIREMENT
A 514286
PMT 1075
Answer to Second Problem
In this case, the retirement year is discerned as 65+4 = 69 years. So, I have 29 years (69-40) until
my retirement.
In addition to this, I need to find an account that earns 4% interest
I will start with:
18000 = 0.040 (Total Balance)
18000/0.040 = Total Balance
Total Balance = $ 450000
Formula used to compute Regular Payment deposit amount is same as
PMT= A x (APR/n)/ ((1 + APR/n)(ny) -1)
A= $ 450000 (The required amount)
APR= 4% or 0.040
n= 12 Number of monthly contributions in a year
y= 29 The number of years until retirement
Now to find the required payment we need to compute:
PMT= 450000 x (0.040/12)/ ((1 + 0.035/12)(12x29)-1)
PMT = 687

5SAVING FOR RETIREMENT
Based on the calculations I need to contribute $ 687 every month before I retire four
years later, for providing me $ 1500 p.m., which I am looking for without depleting principle.
Calculation of Regular Payment Deposit Amount for Second
Scenario
Total Months 12
Monthly Cheque from Navy 1500
Total Yearly Withdrawal 18000
Interest Rate 4.00%
APR 0.33%
No. of years until retirement 29
ny 348
Total Balance (A) 450000
PMT A x (APR/n)/ ((1 + APR/n)(ny) -1)
A 450000
PMT 687
Recommendations
As per the depictions made in both the situations, I need to pay lower contribution in the
second case as the retirement time is delayed. Henceforth, the Regular Payment Deposit Amount
as per the second situation is more preferable in nature.

6SAVING FOR RETIREMENT
Bibliography
Pfau, W.D., Tomlinson, J.A. and Vernon, S., 2017. Retirement Income Programs: The Next Step
in the Transition from DB to DC Retirement Plans. The Journal of Retirement, 4(3), pp.11-27.
Scott, J.S., Inoue, S., Maggioncalda, J.N., Ramirez, D., Hu, W.Y., Watson, J.G., Boudreau, D.,
Stein, G. and Shearer, J.W., Financial Engines Inc, 2014. Creating and maintaining a payout-
ready portfolio within an investment plan to generate a sustainable income stream. U.S. Patent
8,725,614.