How much does a $2,000 pension cost?

📖 The story

Mrs. Carter wants to pay herself a private supplementary pension of $2,000 per month for 24 years starting at age 67. In the pension phase she conservatively assumes 4 %.

ℹ Ordinary payout, capital fully used up at the end.

Change any number and press "Calculate" – or use "Type in" on the right to watch it entered.

What you learn

Behind a seemingly small monthly pension stands a large amount of capital. Only those who know the need understand why they must save in good time – and that awakens their own urge to save.

In short: Behind a seemingly small monthly pension stands a substantial amount of capital – that makes the savings need tangible.

Formula

K0 = R · (1 − q^(−n))/(q − 1)

With the example numbers

K₀ = 2.000,00 € · (1 − q⁻ⁿ)/(q−1), n = 288 = 372.588,27 €

How to read the formula

The present value reverses compound interest: each future pension payment is discounted because a dollar in 20 years is worth less today. The sum of all these discounted payments is the capital that must suffice at the start of retirement. Takeaway: behind a small monthly pension sits a large pool of capital.

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