Need help calculating future value?

Question

I expect to retire in 30 years and I wish to accumulate $1,000,000 in my retirement fund by that time. If the interest rate is 12% per year, how much should I put into the retirement fund each year in order to achieve my goal of $1,000,000?

Answer 1

you've got the classic annuity problem. My financial calculator says a payment of 4143.66 is needed and I think the calculator is set up so it assumes the payment is at the beginning of the year, earning interest.

Answer 2

First , you might want to look at inflation. In 30 years at a 3% annual rate of inflation, one million dollars will not be nearly enough for retirement (less than $400,000 in today's dollars).

Second, you need to be realistic. 12% per year is way too much to expect. The long-term return on the stock market is closer to 10%.

There are plenty of sites that offer retirement calculators (including calculating how much you need to 'have in the bank' when you retire). Try USA Today's website. Click on the money page (top left), then on 'calculators' in the left hand column.

I just ran some numbers for you on that calculator. At 9.5% interest you will have one million dollars in 30 years if you invest approximately $500 each month, for 30 years.

Answer 3

FV
PV = ---------------
(1+i)^ t

You actually have the future value and what you are trying to find is the present value of $1 million. So in other words, if I invest some unknown amount of money now, at 12% a year, I'll have a million dollars in 30 years. Thus,

FV = $1 million
i = 0.12
t = 30 years

Thus,

$1 million
PV = ---------------
(1+0.12)^ 30

$1 million
PV = ---------------
(1.12)^ 30

$1 million
PV = ---------------
33.6

PV = $29,761.90