Question

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?

Answer 1

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

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