MF has decided to start saving for his retirement. He will start at the end of...

MF has decided to start saving for his retirement. He will start at the end of this year saving $2000 a year for 10 years and $5,000 a year for the next 15 years after that. When he has finished with this period, he will still have 10 years left until he retires. The interest rate before retirement is 9.5% interest per year. After he retires the expected interest rate is 8%. If he wants to withdraw from his account for 25 years, how much will he be able to withdraw each year so nothing is left at the end of the 25 years?

Expert Solution

Sol:

Annual deposits (PMT) = $2,000 for 10 years and then $5,000 for next 15 years.

Interest rate = 9.5% per year before retirement and 8% after retirement.

Period (NPER)

To determine how much he will be able to withdraw each year so nothing is left at the end of the 25 years we can use FV and PMT function in excel:

PMT	-2000
NPER	10
Interest rate	9.50%
Future value	$31,120.58

Present value	$31,120.58
PMT	5,000
NPER	15
Interest rate	9.50%
Future value	$274,112.56

Present value	$274,112.56
NPER	10
Interest rate	9.50%
Future value	$679,313.31

Present value	$679,313.31
NPER	25
Interest rate	8%
PMT	$63,637.24

Therefore amount he will be able to withdraw each year so nothing is left at the end of the 25 years will be $63,637.24.

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jeff jeffy answered 2 years ago

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