Question

You have $400,000.00 saved in a retirement account paying 4% interest compounded monthly and are ready to start your retirement. You have to figure out how much money you can safely take out of your account every month because you don't want to run out of money before you die.

How much money can you take out each month if you expect to live another 25 years?

Answer 1

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Answer:

$2,104.33 at the beginning of the month, or

$2,111.35 at the end of the month

Explanation:

The amount you can withdraw at the end of the month is given by the annuity formula ...

A = P(r/12)/(1 -(1 +r/12)^(-12t))

where principal P is earning annual rate r for t years

A = $400,000(0.04/12)/(1 -(1 +0.04/12)^(-12·25)) ≈ $2,111.35

If the withdrawal is at the beginning of the month, then the amount is less by a factor of (1+0.04/12) ≈ 1.003333. It will be $2,104.33.