Question

I am 31 years old and have $30,000 in savings. I plan on saving $1,000 per month until I retire at age 68. I'm of the opinion that I can make 9% on my investments. If the actuaries say that I will live to be 94,and I shift my post-retirement savings to a safer portfolio that delivers a 4% return, how much can I take each month from my portfolio and end up with exactly no money when my time is up?

Answer 1

Total years at which investments earn 9% = 68-31 = 37 years

We first estimate the amount accumulated at retirement

Using a financial calculator

PV = 30000

PMT =1000

N=444 ( Since there are 37*12 =444 monthly periods)

I/Y = 0.75 (9%/12=0.75% interest per period)

cpt FV, we get FV = 4373580

Now, this amount is invested for 94-68 =26 years at 4% rate and an amount would be withdrawn monthly

Using a financial calculator

PV = -4373580

FV = 0

I/Y = 0.333 (4%/12 =0.333% monthly rate)

N = 312 (26years*12 months = 312 monthly payments)

cpt PMT, we get PMT = 22568.83

Hence, each month $22568.83 can be taken