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Joshua, who is currently 25 years old, wants to invest money into a retirement fund so as to have $2,000,000 saved up when he retires at age 65.
Joshua, who is currently 25 years old, wants to invest money into a retirement fund so as to have $2,000,000 saved up when he retires at age 65. If he can earn 12% per year in an equity fund, calculate the amount of money he would have to invest in equal annual amounts and alternatively, in equal monthly amounts starting at the end of the current year or month respectively.
With annual deposits: With monthly deposits:
(Using the APR as the interest rate)
FV = $2,000,000; FV = $2,000,000;
N = 40 years; N = 12*40=480;
I/Y = APR = 12%; I/Y = APR = 12%;
PV = 0; PV = 0;
C/Y=1; C/Y = 12
P/Y=1; P/Y = 12
PMT = $2,607.25 PMT = $169.99
(Using the periodic rate (APR/m) as the interest rate )
FV= $2,000,000;
N = 12*40=480;
I/Y= 12%/12=1%
PV=0
C/Y = 1
P/Y = 1
PMT = $169.99
Looking at these numbers most people would think this is affordable..why then are most Americans not saving for their retirement? Discuss what you believe to be the real reason most 25 year olds (like Joshua in our example above) are not saving for retirement. What do you think we can do to change this trend?
