Question

Suppose you have $1,500,000 when you retire and you want to withdraw an equal amount each year for the next 30 years. How much can you withdraw each year if you earn 7%? What if it earns 9%?

Answer 1

Answer a.

Balance at retirement = $1,500,000
Annual Interest Rate = 7%
Period = 30 years

$1,500,000 = Annual Payment * PVIFA(7%, 30)
$1,500,000 = Annual Payment * (1 - (1/1.07)^30) / 0.07
$1,500,000 = Annual Payment * 12.40904
Annual Payment = $120,879.62

Answer b.

Balance at retirement = $1,500,000
Annual Interest Rate = 9%
Period = 30 years

$1,500,000 = Annual Payment * PVIFA(9%, 30)
$1,500,000 = Annual Payment * (1 - (1/1.09)^30) / 0.09
$1,500,000 = Annual Payment * 10.27365
Annual Payment = $146,004.58