Question

Upon retirement, Juanita moves her whole retirement account into a new account earning 4.7% annually. If Juanita wishes to withdraw from her account quarterly and she plans on her retirement account lasting for 20 years, what amount can she withdraw each quarter?

Answer 1

Let the whole retirement Amount after retirement be X. Now we need to find the fraction of this X that could be withdrawn each quarter for 20*4 = 80 quarters. The present value of those 80 cashflows would be X. Therefore each payment value is computed as:

X P(1.047)0.25P(1.047)0.5P(1.047)-0.75 .80 terms

1 - 1.047-0.25 80 1-1.047-0.25 X P(1.047)0.2

1 1.047-20 1-1.047-0.25 X P(1.047)0.2

X P(1.047)-0.25 0.6009 0.0114

X P(1.047)-0.2552.634

52.0332P

P0.0192P

Therefore about 1.92% of the whole retirement account could be withdrawn each quarter for 20 years.