Question

You contribute $1,000 annually to a retirement account for eight years and stop making payments at the age of 25. Your twin brother (or sister . . . whichever applies) opens an account at age 25 and contributes $1,000 a year until retirement at age 65 (40 years). You both earn 10 percent on your investments. How much can each of you withdraw for 20 years (that is, ages 66 through 85) from the retirement accoun

Answer 1

Value of your contribution after 8 year is calculated in excel and screen shot provided below:

B5 frFV(B3,B2,-B1,) $1,000.00 1 Annual Payment 2 Tenure year Quarterly Interest rate 4 10.00% 5 Value at end of year 8 $11,435.89

Value at end of year 8 will be $11,435.89.

After 8 year you have 32 more year remains in retirement.

So, total amount you have at time of retirement = $11,435.89 × (1 + 10%) ^ 32

= $11,435.89 × 21.1138

= $241.454.79

So, total amount you have at time of retirement will be $241,454.79.

You will live for another 20 year after retirement, so annual withdarwal from retirement is calculated in calculated in excel and screen shot provided below:

B5 $241,454.79 10.00% 1 Total Saving at time of retirement 2 Annual Interest rate 3 Tenure 4 5 Annual withdrawal 20.00 year $28,361.19

You can withdraw $28,361.19 each year for 20 year.

Now, Your twin deposits $1,000 for 40 year (25 year to 65 year). So total accumulated value at time of retirement she have is calculated in excel and screen shot provided below:

B5 V(B3,82,-B1,) $1,000.00 1 Annual Payment 2 Tenure 40 year Quarterly Interest rate 4 5 Value at end of year 8 10.00% $442,592.56

So total accumulated value at time of retirement she have is $442.592.56.

She also expect to live 20 year after retirement. So annual withdrawal she can make is calculated in excel and screen shot provided below:

B5 $442,592.56 10.00% 1 Total Saving at time of retirement 2 Annual Interest rate 3 Tenure 4 5 Annual withdrawal 20.00 year $51,986.76

She can withdraw $51,986.76 each year for 20 year.