Question

You are planning to save for retirement over the next 35 years. To do this, you will invest $400 per month in a retirement account. The rate of return for the retirement account is expected to be 6 percent per year. After you retire, you expect that the account will have an annual return of 3 percent. How much can you withdraw each month from your account assuming a 25-year withdrawal period during retirement?

Calculate and show work.

Answer 1

Future Value of Annuity for 35 years

=

where r is the rate of Return for compounding period = 3% /12 = 0.0025

n is the no of compounding period 35 year * 12 = 420

=

= 400 * 741.1563657004

= 296,625.462801

Equal amount will be withdrawn for 25 years. So 296,625.462801 will become the Present value of amount to be withdrawn monthly for necxt 25 years

Present Value =

n = 25 years * 12 = 300

296,625.462801 =

296,625.462801 = Periodic Payment * 210.87645334

Periodic Payments = 296,625.462801 / 210.87645334

Periodic Payments = 1406.63