I just want to know if my thought process is correct. I want to know “how much to save”.
Lets say:
Rate of return = 10%
Life expectancy = 90
Retirement age = 60
Current age = 25
Monthly income = $4000
Saving frequency is weekly
Compounded semi-annually
End of period CF and retirement happens on first day of retirement
I would find the periodic rate since it’s compounded semi-annually.
periodic rate = (1 + 10% / 2) ^ (2 / 12) - 1
Then use it to find the PV of how much I would need if from 60 to 90.
r = 0.816% n = (90-60) * 12 PMT = $4000 So the PV = $1,247,329.99
So this is how much I would need when I retire, so now I need to know how much to save.
Since Im saving weekly (52) I would need PMT
r = 0.0816 n= (60-25) * 52 FV = $1,247,329.99 PV=0
PMT = 298.23/week
Conversely, if wanted to find out what the monthly retirement income would be if I saved quarterly instead would the calculations be similar?
I tried the first part of your calc on my BAII:
P/Y 12 C/Y 2
N 360 I 10 PMT 4000 CPT PV 463,677.8062
Your parameters look fine, but something must have gone awry when you applied the formula.
ETA: I think you used 0.0816% in your formula instead of 0.816%.
When I’m finding how much I should save each week would I use a different periodic rate?
semi-annual compounding with weekly payment frequency
periodic rate = (1 + 10% / 2) ^ (2 / 52) - 1 ?
Yes, you would need to use a different periodic rate for the accumulation phase.
Using the BA II
P/Y 52 C/Y 2
N 1820 I 10 FV 463677.8062 CPT PMT 29.59
You have been so helpful!
Could you also double check if this is right for me please?
Saving $2000 quarterly with semi-annual compounding from 25 to 60
periodic rate = (1 + 10% / 2) ^ (2 / 4) - 1 = 0.0246
Find FV at retirement age
n = 140 i = 2.46 pv = 0 pmt = -2000 FV = 2,360,465.53
Finding monthly income from 60 to 90
Periodic rate = 0.816
FV = 2,360,465.53 N = 60 I = 0.816 Monthly pmt = 30,650.27
Seems quite high, is this correct?
First part on the BAII
P/Y 4 C/Y 2
140 N 10 I PMT 2000 CPT FV 2,383,181.556
Second part on the BAII
P/Y12 C/Y 2
360 N 10 I PV 2,383,181.556 CPT PMT -20,558.944