You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account and $250 per month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with a return of 5 percent. How much can you withdraw each month from your account assuming a 25-year withdrawal period

Question

Jesus King

Business

7 September, 00:15

You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account and $250 per month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with a return of 5 percent. How much can you withdraw each month from your account assuming a 25-year withdrawal period

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Answers (1)

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Alyssa Holloway · Answer 1

Withdrawal each month = $11,379.01

Explanation:

As per the data given in the question,

Value of investment at the time of retirement

= 750 * (((1 + (10%:12)) ^ (30*12) - 1) : (10%:12)) + 250 * (((1 + (6% : 12)) ^ (30*12) - 1) : (6%:12))

= $1,946,494.70

So, we can calculate the withdrawal of each month by using following formula:

Withdrawal each month = $1,946,494.70 : ((1 - (1 + (5% : 12)) ^ (-25*12)) : (5% : 12))

= $11,379.01