II. Retirement Planning
A 52-year-old client asks an accountant how to plan for his future retirement at age 62. He expects income from Social Security in the amount of $21,600 per year and a retirement pension of $40,500 per year from his employer. He wants to make monthly contributions to an investment plan that pays 8% compounded monthly for 10 years so that he will have a total income of $83,700 per year for 30 years. What must the size of the monthly contributions be to accomplish this goal, if it is assumed that money will be worth 8% compounded continuously throughout the period after he is 62?
To help you answer this question, complete the following.
The monthly contribution R that would, after 10 years, amount to the present value S found in Question 2 can be obtained from the formula
where i represents the monthly interest rate and n the number of months. Find the client’s monthly contribution, R.
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