Question

You have $500,000 saved for retirement. Your account earns 5% interest. How much will you be able to pull out each month, if you want to be able to take withdrawals for 15 years?

Answer 1

To calculate the monthly withdrawal from a retirement account with $500,000 at 5% interest over 15 years, you should use the annuity formula taking into account the periodic interest rate and total number of payments.

Step-by-step explanation:

The retirement account question involves calculating monthly withdrawals based on an initial principal amount, interest rate, and a specified period of time. To find the monthly withdrawal amount, we need to use the annuity formula:

PV = PMT × {[(1 - (1 + r)⁻ʹ⁼¹)] ÷ r}

Where:
PV = Present Value or the initial amount saved ($500,000)
PMT = Payment amount per period (monthly withdrawal)
r = Periodic interest rate (5% annually ÷ 12 months)
n = Total number of payments (15 years × 12 months)

Calculating 'n' and 'r' and plugging the numbers into the annuity formula will give us the monthly withdrawal amount.