Question

In: Finance

You are planning to save for retirement over the next 25 years. To do this, you...

You are planning to save for retirement over the next 25 years. To do this, you will invest $900 a month in a stock account and $600 a month in a bond account. The return of the stock account is expected to be 9 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with a 8 percent return.   

How much can you withdraw each month from your account assuming a 20-year withdrawl period?

Solutions

Expert Solution

We should first calculate the future of investment to get value that can be investible for regular payments after retirements:

Using financial calculator BA II Plus - Input details:

Stock

Bond

I/Y = Rate / Compounding frequency =

0.75

0.50

PV = Present Value =

$0

$0

N = Number of compounding periods =

300

300

PMT = Payment

-$900

-$600

CPT > FV = Future Value =

$1,009,009.74

$415,796.38

Total of Stock and Bond Future Value = $1,009,009.74 + $415,796.38 =

$1,424,806.12

Now, we can calculate each month withdrawal for next 20 years:

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate / Compounding frequency = 8/12 =

0.666667

FV =

$0.00

N = Number of compounding periods =

240

PV = Present Value = Total of Stock and Bond Future Value =

-$1,424,806

CPT > PMT =

$11,917.65

Each month withdrawal of $11,917.65 for next 20 years.


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