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You are planning to save for retirement over the next 30 years. To do this, you...

You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account and $325 per month in a bond account. The return of the stock account is expected to be an APR of 10.5%, and the bond account will earn an APR of 6.1%. When you retire, you will combine your money into an account with an APR of 6.9%. All interest rates are compounded monthly. How much can you withdraw each month from your account assuming a withdrawal period of 25 years?

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Expert Solution

Value of stock account after 30 years is calculated using FV function in Excel :

rate = 10.5%/12 (converting annual rate into monthly rate)

nper = 30 * 12 (total number of monthly deposits = number of years * 12)

pmt = -750 (Monthly deposit. This is entered with a negative sign because it is a cash outflow)

FV is calculated to be $1,887,300.74

Value of bond account after 30 years is calculated using FV function in Excel :

rate = 6.1%/12 (converting annual rate into monthly rate)

nper = 30 * 12 (total number of monthly deposits = number of years * 12)

pmt = -325 (Monthly deposit. This is entered with a negative sign because it is a cash outflow)

FV is calculated to be $332,782.27

Total value of stock account + bond account after 30 years = $1,887,300.74 + $332,782.27

Total value of stock account + bond account after 30 years = $2,220,083.01

Monthly withdrawal during retirement is calculated using PMT function in Excel :

rate = 6.9%12 (converting annual rate into monthly rate)

nper = 25 * 12 (total number of monthly withdrawals = number of years * 12)

pv = 2220083.01 (Total value of stock account + bond account after 30 years)

PMT is calculated to be $15,549.74

Monthly withdrawal during retirement is $15,549.74

jeff jeffy answered 1 year ago
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