You are planning your retirement in 10 years. You currently have $170,000 in a b

Question

You are planning your retirement in 10 years. You currently have $170,000 in a bond account and $610,000 in a stock account. You plan to add $7,000 per year at the end of each of the next 10 years to your bond account. The stock account will earn a return of 11 percent and the bond account will earn a return of 7.5 percent. When you retire, you plan to withdraw an equal amount for each of the next 25 years at the end of each year and have nothing left. Additionally, when you retire you will transfer your money to an account that earns 6.75 percent.

How much can you withdraw each year in your retirement?

Explanation / Answer

Future value after 1o years in account:

Stock: Using financial calculater enter N = 10, PMT =0, PV = 610000, I/Yr = 11% and press FV key, the amount will be 1732047.

Bond: Using financial calculater enter N = 10, PMT = 7000, I/Yr = 7.5%, PV = 170000 and press FV key, the amount will be 449405.

Total balance after 10 years will be 1732047+449405= 2181452

Annual withdrwal will be $182,995 calculated Using financial calculater, enter N = 25, I/Yr = 6.75%, Pv = 2181452 and press PMT key = 182995

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