Question

You have a relative who has accumulated savings of $ 250,000 over his working lifetime and now plans to retire. Assuming that he wishes to withdraw equal installments from these savings for the next 25 years of this life, how much will each installment amount to if he is earning 5% on his savings?

Answer 1

Accumulated fund = $250,000
Interest rate = 5%
Period = 25 years

Let annual withdrawal be $x

$250,000 = $x/1.05 + $x/1.05^2 + … + $x/1.05^24 + $x/1.05^25
$250,000 = $x * (1 - (1/1.05)^25) / 0.05
$250,000 = $x * 14.093945
$x = $17,738.11

Annual withdrawal = $17,738.11