Sam Boney, a local ice rink manager, is planning his retirement which will occur

Question

Sam Boney, a local ice rink manager, is planning his retirement which will occur in 30 years. He plans to save $500 per month for the first 15 years and $700 per month for the second 15 years. During the thirty years that Sam is saving, he expects to earn a 12 percent rate of return compounded monthly. When he retires, he becomes more risk averse and is willing to accept a lower rate of return. Assume Sam wishes to withdraw $12,000 per month from his portfolio for 20 years and wants to leave his heirs $300,000 at the end of 20 years. What interest rate (APR) must you earn to achieve your goal during retirement? Assume monthly compounding during retirement.

Explanation / Answer

Answer: APR=

=12000*12*20+300000=3180000

=500*12*15+700*12*15=90000+126000=216000

=(216000/3180000)*100

=6.79%

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