Question

g you save $5,000 per year for the 40 years you are working (years 1 - 40) . how much can you withdraw in equal amounts for the 35 years you are retired (years 41 - 75) if the interest rate is 12%?

Answer 1

To determine the annual withdrawal amount during retirement, calculate the future value of savings at a 12% interest rate over 40 years and then use the present value of annuity formula to find equal withdrawals over 35 years of retirement.

To answer how much you can withdraw in equal amounts for the 35 years of retirement after saving $5,000 per year for 40 years with a 12% interest rate, we have to calculate the future value of annuity investments during the working years and then determine the present value of an annuity for the retirement years.

To find the future value of the savings over the working period (years 1-40), we use the Future Value of an Annuity formula:

FV =
`P * [((1 + r)^n - 1) / r]`, where P is the annual payment, r is the interest rate per period, and n is the total number of payments.

Once we have the future value at the end of the working years, we can calculate the annual withdrawal during retirement using the Present Value of an Annuity formula:

PV =
`W * [1 - (1 + r)^(-n)] / r`, where W is the annual withdrawal, r is the interest rate per period, and n is the total number of withdrawals.