Question

You are planning to save for retirement over the next 30 years. To do this, you will invest 720 per month in a stock account and320 per month in a bond account. The return of the stock account is expected to be 9.2 percent, and the bond account will return 5.2 percent. When you retire, you will combine your money into an account with a return of 6.2 percent. All interest rates are APRs with monthly compounding. How much can you withdraw each month for a period of 25 years?

Answer 1

To calculate the amount you can withdraw each month for a period of 25 years, you need to calculate the total amount of money saved in the stock and bond accounts. The total amount saved will be $1,635,815.97. Using the formula for annuity payments, the monthly withdrawal amount will be approximately $8,110.22.

Step-by-step explanation:

To calculate the amount you can withdraw each month for a period of 25 years, we first need to calculate the total amount of money saved in the stock account and the bond account. The stock account will have a total value of:

$720/month * 12 months/year * 30 years * (1 + 0.092/12)^360 = $1,157,050.81

The bond account will have a total value of:

$320/month * 12 months/year * 30 years * (1 + 0.052/12)^360 = $478,765.16

Combining these two accounts, the total amount of money saved will be:

$1,157,050.81 + $478,765.16 = $1,635,815.97

Now, we can calculate the monthly withdrawal amount from this total amount of money for a period of 25 years at a return rate of 6.2%:

Using the formula for annuity payments, the monthly withdrawal amount will be:

$1,635,815.97 * (0.062/12) * (1 + (0.062/12))^300 / ((1 + (0.062/12))^300 - 1) ≈ $8,110.22