you are now 37! You are planning your retirement and have decided that you can s

Question

you are now 37! You are planning your retirement and have decided that you can save $8,000.00 per year to go toward your retirement. The plan is to make your first deposit one year from today. You found a mutual fund that is expected to provide a return of 7.5% per year. You plan to retire at the age of 65, exactly 28 years from today. It is your expectation that you will live for 25 years after your retirement (you will be 92). Under these assumptions, how much can you spend each year after you retire? Your first withdrawal will be made at the end of your first retirement year.

Explanation / Answer

Below is SOln using excel functins :- Annual Paypment PMT = 8000 Rate = 7.5% No of deposits = nper = 28 So Future value of deposits at age 65 = FV(Rate,nper,PMT) = FV(7.5%,28,-8000) = $701,434 Now I will use this lumpsum inevsted at 7.5% for next 25 Yrs at end of whch it becomes zero. So Annual amount which I can spend = PMT(Rate,nper,PV,FV) = PMT(7.5%,25,701434,0) = -$62,926 Negative sign indicates that this amt is being withdrawn. So how much can you spend each year after you retire = $62,926

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