Question

You just decided to begin saving for retirement. You will make deposits of $1,000 per month into a retirement account that earns 8.00% p.a. The first deposit is made today and the last deposit will be made when you retire exactly 30 years from today. The day you retire you will buy an RV for $240,000. You will begin to make withdrawals from the account the first month after you retire. If you plan to live an addition 25 years, you will be able to withdraw $_____. (Note: you make 300 total monthly withdrawals from your retirement account.)

Answer 1

First we have to find future value using FV function in EXCEL

=FV(rate,nper,pmt,pv,type)

These deposits are monthly

rate=8%/12=0.667%

nper=number of periods=12*30=360

pmt=1000

pv=0

type=1 (deposits are made at the begining of the year, hence type=1)

=FV(0.667%,360,-1000,0,1)

FV=$1,500,295

The accumulated value=$1,500,295

At the time, you retire, buys an RV of $240,000. the value becomes=$1260295 (1500295-240000)

==> Now how much withdrawls we make, use PMT function

=PMT(rate,nper,pv,fv,type)

rate=0.667%

nper=12*25=300

pv=1260295

fv=0

type=0 (because first withdrawl happens after a month, means end of the month,hence type=0)

=PMT(0.667%,300,-1260295,0,0)

PMT=9727.16

The monthly withdrawl=$9727.16