Question

# You are planning to save for retirement over the next 15 years. To do this, you...

You are planning to save for retirement over the next 15 years. To do this, you will invest \$600 a month in a stock account and \$300 a month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with a return of 8 percent. How much can you withdraw each month from your account assuming a 20-year withdrawal period?

1. Future Value of Amount invested in Stock fund = Monthly Investment * Future Value Annuity factor (0.83%,180)

Future Value of Amount invested in Stock fund = 600 * 414.4703

Future Value of Amount invested in Stock fund after 15 years = \$248682.21

2. Future Value of Amount invested in Bond fund = Monthly Investment * Future Value Annuity factor (0.50%,180)

Future Value of Amount invested in Bond fund = 300 * 290.8187

Future Value of Amount invested in Bond fund after 15 years = \$87245.61

3.Account Balance after 15 years = \$248682.21 + 87245.61 = \$335927.82

4. Monthly Withdrawal for 20 years = Accounts balance after 15 years / Present Value Annuity Factor (0.667%,240)

Monthly Withdrawal for 20 years = \$335927.82 / 119.5543

Monthly Withdrawal for 20 years = \$2809.83