00:01
So this question is two parts, and we actually need to work backwards to figure out the answer.
00:06
So ultimately, this person just started a job wants to know how much they need to put aside for retirement.
00:15
And to start, we need to think about how much they want when they start to retire in that account so that they can pull out $100 ,000 a year.
00:25
So to do that, we're going to do the present value of an ordinary and business.
00:30
Annuity.
00:32
So here are the variables.
00:34
So we've got pv.
00:38
Here, let's try it again.
00:41
We've got pv.
00:43
So present value, future value, r, which is what they're taking out each month, the quantity, i is interest, and is number of periods.
00:55
So in this case, he thinks he's going to be retired for 30 years.
00:59
Interest rate on the account is 5%.
01:02
He wants to take out $100 ,000.
01:08
And the future value is going to be zero.
01:10
He wants to take it out and empty out the count by the time he is done with the 30 years, and then we don't know the present value.
01:18
So to determine this, the formula is present value equals r times the present value of an ordinary annuity.
01:31
And so if you have a table that you can look at to determine this number that is handy, i'm going to write out the equation, and then i will look at my table as well.
01:41
So pv equals r and this written out is 1 minus 1 over 1 plus i to the nth over i.
02:01
So if you have a calculator you can do it this way where you plug in 30 for n and 5 % for both of the is.
02:12
Otherwise you can look at a table and go down to the 30.
02:18
Row and over to the fifth column for 5%.
02:23
And that will give you the number that you're looking for...