A more difficult problem, and one that is much more common in retirement planning, is determining how much to invest each year or each month to accomplish long-range retirement income objectives. Fortunately, this calculation can also be made using a variation of the formulas we have already studied and the factors from the compound interest tables.

Remember that we calculated a future value of periodic investments using the "One Dollar Per Annum in Advance" table and the formula FVSS = I (FVif). This assumed that we knew how much we wanted to invest each year (I) and needed to calculate what its value would be in the future. This time, we know how much we want to have, but we need to calculate how much to invest to get there.

EXAMPLE:

Your prospect determines that she wants to have $100,000 for retirement in 15 years. She believes she can maintain a steady 7 percent rate of return. How much does she need to save each year?

To determine the amount she needs save each year, you can use division in the formula, drawing the interest factor (if) from the "One Dollar Per Annum in Advance" compound interest table:

Annual saving required = FVSS ÷ FVif

                                 = $100,000 ÷ 26.888

                                 = $3,719

Thus, your prospect needs to invest $3,719 now and each yeartoaccumulate $100,000 at the end of the 15-year period.

Check the MSN calculators at: http://www.msn.com/en-us/money/tools/savingscalculator

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FA 261 use Table A-2.