Question

Emelia Vanderpuye retired this morning and has $1.5 million in her retirement account. She expects to live thirty years in retirement and plans to leave $1 million to her children and grandchildren. What is the maximum monthly withdrawal she can make from her retirement account if she expects to earn 6 percent per year on the account? The first withdrawal will take place one month from today.

Answer 1

The applicable options are:

$7,997.75 $5,842.50 $6,955.93 $8,799.06

The first one ,$ 7,997.75 is correct answer

Step-by-step explanation:

The amount of monthly withdrawal can be computed using the pmt formula in excel

=pmt(rate,nper,-pv,fv)

rate is the monthly rate of return which is 6%/12=0.5%

nper is the thirty years multiplied by 12 which is 360 months

pv is the current amount in her retirement savings which is $1.5 m

fv is the amount expected to be left in the account for children and grandchildren which is $1 m

=pmt(0.5%,360,-1500000,1000000)=$ 7,997.75

The amount of monthly withdrawal is 7,997.75