You are planning your retirement in 10 years. You currently have $176,000 in a b

Question

You are planning your retirement in 10 years. You currently have $176,000 in a bond account and $616,000 in a stock account. You plan to add $6,400 per year at the end of each of the next 10 years to your bond account. The stock account will earn a return of 10.5 percent and the bond account will earn a return of 7 percent. When you retire, you plan to withdraw an equal amount for each of the next 24 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 6.25 percent.

How much can you withdraw each year in your retirement? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)

You are planning your retirement in 10 years. You currently have $176,000 in a bond account and $616,000 in a stock account. You plan to add $6,400 per year at the end of each of the next 10 years to your bond account. The stock account will earn a return of 10.5 percent and the bond account will earn a return of 7 percent. When you retire, you plan to withdraw an equal amount for each of the next 24 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 6.25 percent.

Explanation / Answer

Future Value (FV) of the bond investment

PV = 176,000

PMT ( Annuity investment ) = 6400

N = 10

Interest rate ( I/Y) = 7 %

So, FV (from the formula) = $ 434643.91

Future value of Equity investment

PV = 616,000

PMT ( Annuity investment ) = 0

N = 10

Interest rate ( I/Y) = 10.5 %

So, FV (from the formula) = $ 1,671,873.80

Total FV after 10 yrs = $ 2,106,517.71

Now from this PMT can be calculated by

FV = 0

PV = -2106517,71

N=24

I/Y = 6.5 %

PMT = $ 171,742.48

That is , $ 171,742.48 can be withdrawn every year from retirement account.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.