In: Finance
Suppose you plan to retire at age 70, and you want to be able to
withdraw an amount of $87,000 per year on each birthday from age 70
to age 100 (a total of 31 withdrawals). If the account which
contains your savings earns 5.7% per year simple interest, how much
money needs to be in the account by the time you reach your 70th
birthday? (Answer to the nearest dollar.)
Hint: This can be solved as a 30-year ordinary annuity plus one
withdrawal at age 70, or as a 31-year annuity due.
Money needed in the account at the age of 70 is $1,323,985 calculated as the present value of annuity due, as follows: