You are trying to plan for retirement in 10 years, and currently you have RM150,

Question

You are trying to plan for retirement in 10 years, and currently you have RM150,000 in a savings account and RM250,000 in common stocks. In addition, you plan to add to your savings by depositing RM8,000 per year in your savings account at the end of each of the next 5 years and then RM10,000 per year at the end of each year for the final 5 years until retirement.
i. Assuming your savings account returns 8 percent compounded annually while your investments in stocks will return 12 percent compounded annually, how much will you have at the end of 10 years? (Ignore taxes.)
ii. Assuming that you expect to live for 20 years after your retirement, and at the beginning of retirement, you deposit all of your savings (answer from i) in a bank account paying 11 percent annual interest. How much can you withdraw each year after retirement (20 equal withdrawals, starting a year after retirement) to end up with a zero balance at death?

Explanation / Answer

Answer i)
Future value (after 10 years) in RM1000s:
(150*1.08^10 + 250*1.12^10) + 8*1.08^9 + 8*1.08^8 + 8*1.08^7 +8*1.08^6+8*1.08^5 + 10*1.08^4 + 10*1.08^3 + + 10*1.08^3 + + 10*1.08^2 + + 10*1.08^1 + 10 = 1227.926503

Answer = RM 1,227,926.50

Answer ii) Present value of withdrawals be X.

Hence, X/1.11 + X/1.11^2 + ... + X/1.11^20 - 1227926.5 = 0

Hence, X = RM 154197.65

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

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