The Caines have $950,000 in a retirement account that earns an annual rate of 2.75% compounded monthly., They want to be able to take out regular monthly withdrawals for 18 yrs. What should their monthly widrawal be?
| Let 'x' be the amount withdrawn evert month. | |||
| Annual Inrerest Rate (i) = | 2.75% Compounded Monthly | ||
| No. of years (n) = 18 Years | |||
| Retirement fund (P) = $ 950,000 | |||
| Then, Present Value of all withdraws should be equals to $ 950,000. | |||
| Therefore, | |||
| x* PVAF((2.75%/12),(18*12 mts) | = | $ 950,000 | |
| x* PVAF(0.229%,216mts) | = | $ 950,000 | |
| x*170.25 | = | $ 950,000 | |
| x | = | $950000/170.25 | |
| Monthly Withdrawl (x) | = | $ 5,580 | |
|
Working Note: |
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| Calculation of PVAF | |||
| PVAF(i%, n Periods) | = | (1-(1+i)^n)/i | |
| (1+i)^n | = | (1+(0.275/12))^(18*12) | |
| (1-(1+i)^n)/i | = | 170.26 | |
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