You are planning to save for retirement over the next 30 years. To do this, you

Question

You are planning to save for retirement over the next 30 years. To do this, you wll Inves $720 per month In a stock account and $320 per month In a bond account. The return of the stock account Is expected to be 9.2 percent, and the bond account will pay 5.2 percent. When you retire, you will combine your money Into an account with a return of 6.2 percent. How much can you withdraw each month from your account assuming a 25-year withdrawal period? (Do not round Intermedlete calculetlons and round your answer to 2 declmal places, e.g., 32.16.) Withdrawa per month

Explanation / Answer

We need to find the future value of annuity

FV of stock account = $720 *( ( 1 + r/12)^(n*12) - 1)/r/12

= $720 * ((1.00767)^(360) - 1)/.00767

= $1,375,512.78

FV of bond account = $320 * ((1.00433)^360 - 1)/.00433

= $276,186.33

Total value after 30 years = $1375512.78 + $276186.33 = $1651699.11

Each month withdrawal can be found by present value of annuity.

PV of annuity = withdrawal * (1 - (1+r/12)^(-12*n))/(r/12)

1651699.11 = withdrawal * (1 - (1.00517)^-300)/.00517

withdrawal = $10841.83

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