Question

Alex turned 30 today, and she is planning to save $5,500 per year for retirement, with the first deposit to be made 1 year from today. She will invest in a mutual fund that will provide a return of 4% per year. She plans to retire 30 years from today, when she turns 60, and she expects to live for 30 years after retirement, to age 90. Under these assumptions, how much can she spend in each year after she retires? Her first withdrawal will be made at the end of her first retirement year. $23,541 $17,839 $15,211 $19,460

Answer 1

Information provided:

Annual saving= $5,500

Time= 30 years

Interest rate= 4%

The question is solved by computing the future value.

Enter the below to calculate the future value:

PMT= -5,500

N= 30

I/Y= 4

Press the CPT key and FV to calculate the future value.

The value obtained is 308,467.16.

Therefore, the future value of the investment is $308,467.16.

Enter the below in a financial calculator to compute the annual withdrawal:

PV= -308,467.16

N= 30

I/Y= 4

Press the CPT key and PMT to compute the annual withdrawal.

The value obtained is 17,839.

Therefore, Alex will be able to withdraw $17,839 at the end of every year after she retires.

                                                                                                                                    

In case of any query, kindly comment on the solution.