Question

You have $300,000 saved for retirement. Your account earns 7% interest. How much will you be able to pullout each month, if you want to be able to take withdrawals for 20 years?

Answer 1

We can use the following formula:

`A=Wp((1-p^(-n))/(r))`

Here A is the initial amount at the account;

W is the monthly withdrawn value;

r is the nominal monthly percentage.

n is the number of withdrawing periods (months, in this case).

Now, in this case, we have the following data:

`r=(0.07)/(12)=0.00583`
`p\text{ =}1+r=1+0.00583=1.00583`

and the number of payment periods (= the number of months) is

`n=(20)(12)=240`

Applying these data to the formula given at the beginning of this explanation, we obtain:

`300000=W(1.00583)((1-1.00583^(-240))/(0.00583))`

this is equivalent to:

`300000=W129.77`

solving for W, we get:

`W=(300000)/(129.77)=2311.78`

Thus, the correct solution is:

You will be able to withdraw about $2311.78 every month for 20 years.