Question

Doug​ Klock, 56 just retired after 31 years of teaching. He is a husband and father of three​ children, two of whom are still dependent. He received a $140,000​lump-sum retirement bonus and will receive 2,700 per month from his retirement annuity. He has saved $151,000 in a​ 403(b) retirement plan and another​$93,000 in other accounts. His​ 403(b) plan is invested in mutual​ funds, but most of his other investments are in bank accounts earning 2 or 3 percent annually. Doug has asked your advice in deciding where to invest his​ lump-sum bonus and other accounts now that he has retired. He also wants to know how much he can withdraw per​ month, considering he has two children in college and a nonworking spouse. His current monthly expenses total $6,000. He does not intend to begin receiving Social Security until age 67​,and his monthly benefit will amount to ​$1,500.He has grown accustomed to some risk but wants most of his money in​ FDIC-insured accounts.

a. Assuming Doug has another account set aside for​ emergencies, how much can he withdraw on a monthly basis to supplement his retirement annuity if his investments return is 4 percent annually and he expects to live 25 more​ years?

Answer 1

		Total amount available at retirement:
		Lump sum retirement bonus	$140,000
		Other accounts	$93,000
	Pv	Total investment	$233,000
	Rate	Monthly Interest =(4/12)%=	0.3333%
	Nper	Number of Months of withdrawal	300	(25*12)
	PMT	Amount of monthly withdrawal possible	$1,229.86	(Using PMT function of excel with Rate=0.3333%, Nper=300,Pv=-233000)