This is a common issue that people face when they retire. A good friend of your family is about to become another year older, and she has decided that she wants to start putting money away for her eventual retirement. She has the following number of years till retirement and she has the following expenditure objectives for retirement:
Years until retirement 20
Amount to withdraw each year $50,000
Years to withdraw in retirement 15
Interest rate 7.5%
Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund.
If she starts making these deposits in one year and makes her last deposit in the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?
After finding the solution discuss with your classmates the way it can be solved using excel. What is the implication when problem says “withdrawal will not take place until one year after she retires”?