How much must you invest today in order to have your retirement annuity if the annual interest rate is 6%?
You plan to retire in 15 years, and you want to have an annuity of $50,000 a year for 20 years after retirement. You want to receive the first annuity payment at the end of the 15th year from today.
This is a 2 part problem. We work backwards to find the answer. First we know we want 50,000 a year for 20 years at 6% interest rate. Looking in my annuity table, I find the I have to divide 50,000 by 0.08718456 giving 573,496. Now again working backwards and again looking in the annuity tables but in a different table this time, I find that I have to divide 573,496 by 23.2759699 giving 24,638.98. That is the amount you have to invest each year for 15 years. I am not sure if that is your question or whether the question is what lump sum what you have to invest today in order to obtain the specified result. In the latter case you would need to invest 573,496 * 0.41726506 = 239,300
Adam Bold: Don’t Buy Annuities!
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