How much should you invest each month in order to have $800,000 if your rate of return is 5.3% compounded monthly and you want to achieve your goal in 40 years?

Question

How much should you invest each month in order to have $800,000 if your rate of return is 5.3% compounded monthly and you want to achieve your goal in 40 years?

 

 

If you deposit the amount you need to achieve your goal in 20 years, how much will your savings be worth after 10 years?

Answer 1

We are dealing with the future value of an ordinary annuity. You can lookup the formula and solve for the payment, or you can use a spreadsheet function or financial calculator. the simplest approach is a financial calculator, but you have to understand compound interest and annuities. The variables are

PV = 0
FV = 800,000
N = 40 years = 480 months
i% = 5.3% = .441667%
PMT = ?

PMT = $482.40

For 20 years, PMT - $1,871.52 per month

PV = 0
FV = ?
N = 10 years = 120 months
i% = 4.8% = .4%
PMT = 1,871.52

FV = $296,631.79

The important point is to define the four known variables and solve for the unknown. You have to interpret the problem carefully.