Retirement accounts, such as IRAs and 401k's, let you collect money for retirement while offering tax advantages over conventional savings accounts. When the savings take the form of a scheduled investment, an identical payment amount enters the account during each payment period. The scheduled investment's necessary size depends on the account's growth rate and how much money you want to accrue by retirement. The account's balance grows from both the scheduled investment payments and compounded interest, so you need a financial calculator, rather than direct math, to calculate the scheduled investment.
1. Enter the number of years until you retire using the financial calculator. For example, suppose that you will retire in 30 years. Enter "30."
2. Press the calculator's "n" key.
3. Enter the account's predicted growth rate. For example, suppose that the account will grow at 8.82 percent each year. Enter "8.82."
4. Press the calculator's "i" key.
5. Enter the amount of money that you want to save by the time you retire. For example, suppose that you want to save $260,000. Enter "260000."
6. Press the calculator's "FV" key.
7. Enter the account's current balance. If you have not yet contributed any money to the account, enter "0."
8. Press the calculator's "PV" button.
9. Press the calculator's "compute" button.
10. Press the calculator's "PMT" button. A negative value will appear on the calculator's display.
11. Ignore the value's negative sign. With this example, the calculator will display "-1,972.50," correct to two decimal places. Your scheduled investment must therefore consist of payments of $1,972.50.
Items you will need
- Financial calculator
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