Question

You have $300,000 saved for retirement. Your account earns 10% interest. How much will you be able to pull out each month, if you want to be able to take withdrawals for 25 years?

Answer #1

Present value of annuity is calculated as:

Present value=(Pmt)*[1-{(1+i)^(-n)}]/i

Here, Pmt refers to annuity payments, i is the periodic interest
rate, n is the number of periods.

Number of periods=(25 Years)*(12 months)=300

Substituting the values, we get;

$300,000=(Pmt)*[1-{(1+10%/12)^(-300)}]/(10%/12)

$300,000=(Pmt)*[1-{(1+0.008333333)^(-300)}]/0.008333333

$300,000=(Pmt)*[1-{(1.008333333)^(-300)}]/0.008333333

$300,000=(Pmt)*[1-0.082939758]/0.008333333

$300,000=(Pmt)*0.917060242/0.008333333

$300,000*0.008333333=(Pmt)*0.917060242

$2499.999=(Pmt)*0.917060242

Pmt=$2499.999/0.917060242=$2726.10

**Answer: $2726.10**

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