After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in the retirement to receive this income, if the interest is 9% per year (assume that the payments start on the day of retirement)?
A) $736,693.47
B) $802,995.88
C) $2,043,750
D) None of the above

Question

Quizplus · Accepted Answer

To calculate the required savings, we need to use the formula for present value of an annuity:

PV = PMT * (1 - (1 + r)^(-n))/r

where PV is the present value, PMT is the annual payment, r is the interest rate, and n is the number of periods.

In this case, PMT is $75,000, r is 9%, and n is 25 years. Plugging in these values, we get:

PV = $75,000 * (1 - (1 + 0.09)^(-25))/0.09
PV = $802,995.88

Therefore, the required savings to receive a $75,000 annual income for 25 years at 9% interest is $802,995.88.

Choices A and C are too high, and there is no option for a slightly lower answer, so B is the best choice.

After Retirement, You Expect to Live for 25 Years