The speaker discusses a retirement problem in Excel, where the goal is to determine the annual deposit required to accumulate $240,000 in a retirement account. The person plans to retire in five years, needs the money to last for eight years after retirement, and earns an 8% interest rate. The initial calculation suggests a deposit of $48,000 annually for five years, but this overlooks compound interest. Using Excel's Solver tool, the correct annual deposit is found to be approximately $29,386.55 to ensure $30,000 withdrawals for eight years after retirement. The speaker provides detailed steps and instructions for solving the problem in Excel.
Sure, here are the key facts from the text:
1. The problem is related to the "time value of money" in Excel.
2. The scenario involves retirement planning, with an intention to retire five years from now.
3. The goal is to set up a retirement account today to withdraw $30,000 annually for eight years after retirement.
4. The interest rate is fixed at eight percent per annum for a total of 13 years (five years before and eight years after retirement).
5. The question is how much should be deposited annually into the account.
6. The initial withdrawal required is $240,000 ($30,000/year for eight years).
7. A deposit of $48,000 per year for the first five years is suggested.
8. Compound interest is mentioned as a critical factor in the calculations.
9. A table is prepared with columns for year, balance at the start, deposit/withdrawal, interest, and balance at the end.
10. The balance at the start of each year is linked to the balance at the end of the previous year.
11. Solver tool is used to determine the exact deposit needed to exhaust the $240,000 while allowing withdrawals for eight years.
12. The optimal deposit is calculated to be approximately $29,386.55.
(Note: Some details about specific Excel operations and menu navigation have been omitted as they pertain to the instructional context.)