In: Finance
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?
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.