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Commitment to investing in 2018
Note: You can use any financial calculator to do this problem, but if you want the BEST, you can
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THE SCENARIO
We're nearing the end of 2017, and that means that many people are already thinking of how they'll make a change in their lives in the new year. One of the biggest things most people can do to affect their destinies for the positive is to invest money now so their future will be secure.
Let's say Jane is 30 years old, and has a job that pays her well. Her IRA has $10,000 in it right now, and up to this point, she hasn't been contributing much to it each month. Jane wants to retire at age 60 (as opposed to her Social Security retirement age, which is 67 right now, but may rise over time), and wants to retire with a cool $5 million. She predicts that her investments will yield her an average of 11% return for the entire 30 years between now and when she wants to retire.
The question is: how much should Jane contribute to her IRA every month to meet her retirement goal?
THE SOLUTION
First things first, make sure the calculator is using 12 Payments per Year.
N: 360 (Jane retires in 30 years, which is 360 months)
I/YR: 11 (Jane expects to earn 11% on her money)
PV: -10,000 (The value of her account, today)
PMT: (this is what I'm trying to find)
FV: 5,000,000 (Jane wants to retire with 5 million bucks)
For Jane to retire with $5 million in 30 years, she needs to contribute $1,687.60 each month, starting now.
What do you think? Would contributions of this magnitude be feasible for you? What do you think about Jane's goal of $5 million at age 60? And what do you think about her expectation that she'll be able to earn 11% on her money in the meantime? Let us know in the comments!
