To live comfortably in retirement, you decide you will need to save $2 million by the time you are 65 (you are 30 years old today). You will start a new retirement savings account today and contribute the same amount of money on every birthday up to and including your 65th birthday. Using TVM principles, how much must you set aside each year to make sure that you hit your target goal if the interest rate is 5%? What flaws might exist in your calculations, and what variables could lead to different outcomes? What actions could you take ensure you reach your target goal?
Student response below: You need to reply to the student response. APA and one reference.
The meaning of Time Value of Money is identified as a dollar today could hold more value than a dollar the following year due to the money being an investment today and is earned interest. This is an economic form of principle that proposes present money is valued less than money in the future due to its earning power over time. (Brickner, D. R., & Mahoney, L. S. 2018).
In this case with the information provided, and the formula FV: A[(1+r)^n -1]/r being implied indicates that the required information to be utilized is shown as follows:
A: Paid annually
F: $2 million
$2 million: A*[1.05^35-1)/0.05
$2 million: A*(4.516/0.05)
Therefore, this determines that the amount that needs to be placed aside every year should be $22,143.41. All payments should be made on a proper date each year. However, the interest rates should be carefully looked at throughout the years in case of any adjustments are needed to made in order to reach the overall goal.
Brickner, D. R., & Mahoney, L. S. (2018). Factoring in the time value of money with Excel. Journal of Accountancy, 225(3), 42.Retrieved from https://lopes.idm.oclc.org/login?url=http://search…