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Learn how to use the PV and PMT functions together to decide how much you need at retirement and how much you should deposit each month during your working years….(read more)

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Excel Finance Class 33: Full Life retirement plan PV Annuity & FV Annuity PV & PMT Functions

In the world of personal finance, retirement planning holds a significant position. For individuals to live a comfortable and financially secure life after retirement, it is essential to plan and save accordingly. Excel, being a versatile and widely used software, offers several functions that can be utilized for retirement planning. In this article, we will explore the PV Annuity, FV Annuity PV, and PMT functions in Excel and their role in creating a full life retirement plan.

PV Annuity Function:

The Present Value (PV) Annuity function in Excel allows users to calculate the present value of a series of future cash flows, typically in the form of regular annuity payments. A regular annuity refers to a fixed payment received or made at regular intervals over a specified period.

To use the PV Annuity function, the user needs to provide the following inputs:

1. Rate: The interest rate per period for the annuity.
2. Nper: The total number of payment periods.
3. Pmt: The fixed payment amount made during each period.

Excel will then calculate the present value of the annuity payments based on these inputs.

FV Annuity PV Function:

The Future Value (FV) Annuity PV function works in a similar manner to the PV Annuity function. However, it calculates the future value of a series of cash flows paid or received at regular intervals.

To use the FV Annuity PV function, users need to provide the following inputs:

1. Rate: The interest rate per period for the annuity.
2. Nper: The total number of payment periods.
3. Pmt: The fixed payment amount made during each period.

Excel will then calculate the future value of the annuity payments based on these inputs.

PMT Function:

The PMT function in Excel assists in calculating the fixed periodic payment required to pay off a loan or investment with a constant interest rate over a specific duration.

To use the PMT function, users need to provide the following inputs:

1. Rate: The interest rate per period.
2. Nper: The total number of payment periods.
3. PV: The present value, which represents the initial investment or loan amount.

Excel will then determine the fixed periodic payment necessary to fully pay off the loan or investment within the given period.

Creating a Full Life retirement plan:

With the help of PV Annuity and FV Annuity PV functions in Excel, individuals can calculate the present and future values of their retirement savings or pension plans. These functions assist in assessing whether the accumulated amount will be sufficient to cover expenses during retirement.

To create a full life retirement plan, users input estimated interest rates, the desired number of payment periods (usually years from the retirement age till life expectancy), and the expected monthly or annual retirement income. Excel will then calculate the present value or future value of the retirement savings.

Additionally, the PMT function can be utilized to determine the necessary contributions or periodic savings required to attain a specific retirement goal. Users can input the expected interest rate, the desired number of payment periods, and the desired accumulated retirement savings. Excel will calculate the fixed payment required to achieve the target.

By employing these Excel functions, individuals can make informed decisions about retirement savings, income requirements, and contributions needed to ensure a financially secure future.

In conclusion, Excel provides powerful functions that facilitate retirement planning and financial security. The PV Annuity, FV Annuity PV, and PMT functions enable users to calculate the present and future values of annuity payments, determine the necessary contributions, and assess the adequacy of retirement savings. With these tools at hand, individuals can create a comprehensive full life retirement plan and work towards a financially stable and comfortable retirement.