A young married couple intends to save some money for their retirement at age 65. They began their retirement plan by depositing a fixed amount of money annually for 5 years, and they would skip the next 5 years. They would continue with this scheme for 40 years. In other words, 5 years on and 5 years off. If they intend to save $500,000 and can earn 5% compounded annually, how much money do they expect to deposit each active year until their retirement at 65?. Thank you for any help.

Guest Aug 6, 2017

1+0 Answers


A problem, such as this, requires a multi-step solution.
First, find the FV of $1 per period for the first 5 years @ 5% using this common formula: FV =$1 x (1.05^5 - 1) / 0.05=$5.53. Then project this amount forward for the second 5-year period using this second common FV formula: FV = PV x 1.05^5 =$5.53 x 1.2762815625=$7.05. Then continue this process for eight 5-year periods. You should get the following amounts:
At the end of the first 5-year period =$5.53
At the end of the second 5-year period=$7.05
At the end of the third 5-year period =$14.53
At the end of the fourth 5-year period=$18.54
At the end of the fifth 5-year period =$29.19
At the end of the sixth 5-year period=$37.25
At the end of the seventh 5-year period=$53.07
At the end of the eighth 5-year period =$67.73
This last amount shown to 10 decimal places=$67.7308673760.
Since the young couple's wish is to have $500,000 at 65, then we just divide: $500,000 / $67.7308673760 =$7,382.16 - which is their expected annual payment into their retirement fund. 

Guest Aug 7, 2017

3 Online Users

We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners.  See details