Question

You have $400,000 saved for retirement. Your account earns 9% interest. How much will you be able to pull out each month, if you want to be able to take withdrawals for 20 years?

Answer 1

The amount is computed as follows:

Present value = Monthly withdrawal x [ (1 – 1 / (1 + r)ⁿ) / r ]

r is as follows:

= 9% / 12

= 0.75%

n is as follows:

= 20 year x 12 months

= 240

So, the monthly withdrawal is computed as follows:

$ 400,000 = Monthly withdrawal x [ (1 - 1 / (1 + 0.0075)²⁴⁰ ) / 0.0075 ]

$ 400,000 = Monthly withdrawal x 111.144954

Monthly withdrawal = $ 400,000 / 111.144954

Monthly withdrawal = $ 3,598.90