Question

A person is 21 years old and plans on retiring at age 55. This person is going to invest $75 each month into an IRA that is expected to earn 2.5% interest, compounded monthly. How much more money, rounded to the nearest dollar, is needed per month to reach a retirement savings goal of $100,000?

A spreadsheet was used to calculate the correct answer. Your answer may vary slightly depending on the technology used.

$81
$156
$75
$165

Answer 1

$ 81 more per month needed

Explanation:

This is a calculation involving an ordinary annuity ( payments at the end of the month)

FV = C [ (1+i)^n -1] / i i = periodic interest per month = .025/12

n = periods = 12 months x 34 yrs = 408 periods

FV = 100 000 C = find this amount

100 000 = C ( 1+ .025/12)^408 -1) / (.025/12) <====solve for C

shows C = $ 155.75 needed per month or $ 80.75 MORE per month