Question

You have $500,000 saved for retirement. Your account earns 8% interest. How much will you be able to pull out each month, if you want to be able to take withdrawals for 25 years?

Answer 1

The monthly amount is computed as shown below:

Present value = Monthly amount x [ (1 – 1 / (1 + r)ⁿ) / r ]

r is computed as follows:

= 8% / 12 (Since the payments are monthly, hence divided by 12)

= 0.666666667% or 0.00666666667

n is computed as follows:

= 25 x 12 (Since the payments are monthly, hence multiplied by 12)

= 300

So, the monthly payment will be computed as follows:

$ 500,000 = Monthly amount x [ (1 - 1 / (1 + 0.006666667)³⁰⁰ ) / 0.006666667]

Monthly amount = $ 3,859.08 Approximately

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