Question

Today, you are retiring. You have a total of R411 016 in retirement savings, and have the funds invested such that you expect to earn an average of 7,10% interest compounded monthly on this money, throughout your retirement years. You want to withdraw R2 500 at the beginning of every month, starting today. How long will it be until you run out of money?

Answer 1

Explanation:

To determine how long your retirement savings will last when withdrawing R2 500 at the beginning of every month, we need to use a financial formula called the future value of an annuity formula, which calculates the future value of a series of equal withdrawals made at regular intervals over a fixed period of time.

In this case, we want to calculate how many months it will take for your retirement savings to be depleted, given that you will be withdrawing R2 500 at the beginning of every month. The formula is:

n = [log(PMT/(PMT - r*PV))]/[log(1+r)]

where:

PMT = R2 500 (the regular payment you will make every month)

r = 7,10%/12 (the monthly interest rate, which is the annual rate of 7,10% divided by 12)

PV = R411 016 (the present value of your retirement savings)

Using the above values in the formula, we get:

n = [log(2500/(2500-((7.10%/12)*411016))))]/[log(1+(7.10%/12))]

n = 182.1

Therefore, it will take approximately 182.1 months, or 15.2 years, until you run out of money, assuming all other factors remain constant, and you withdraw R2 500 at the beginning of each month.