Question

How much should you deposit at the end of each month in

an IRA that pays 5% compounded monthly to earn
$110,000 per year from interest alone, while leaving the
principal untouched, to be withdrawn at the end of each
year after you retire in 50 years?
i Click the icon to view some finance formulas.
The monthly deposit is $
(Round up to the nearest dollar.)

Answer 1

$824.39

Explanation:

You want to know the monthly deposit required for a 50-year ordinary annuity to accumulate enough value at 5% so that annual withdrawals can be made of $110,000 without affecting the principal.

Future value

In order for the annual interest to be $110,000 at 5%, you have ...

I = Prt

110,000 = P(0.05)(1)

2,200,000 = P . . . . . . . multiply by 20

The value of the annuity must be $2.2M after 50 years.

Payment

In order for the annuity to have that future value, the monthly payment must be $824.39. This value can be found using a suitable financial calculator or spreadsheet. (Or the appropriate formula from your list.)