Question

You have $500,000 saved for retirement. Your account earns 5% interest. How much will you be able to pull out each month, if you want to be able to take withdrawals for 20 years?

Answer 1

This problem is related to payout annuity. Typically these are used after retirement.

This can be given by formula P= d(1-(1+(r/k))^(-Nk)) /(r/k)

Where P = balance in account

r= rate of interest

N= number of years

d= regular withdrawal

From the given we have P=$500,000 ,r =5% =0.05 ,k= 12 and N=20

500000= d (1-(1+0.05/12)^(-20*12))/(0.05/12)

500,000= d (1-(1.00416)^-240)/(0.00416)

500,000= d (0.63076)/(0.00416)

500,000= d (151.625)

d =500000/151.625

d= 3297.60

The money can be pull out each month is $3297.60