Question

After retiring you want to be able to withdraw $2000 every month for a total of 20 years. If your

retirement account earns 6% interest, how much will you need in your account before you retire?
Round to the nearest cent,

Answer 1

$280,557.35

Explanation:

Assuming your withdrawals are at the beginning of the month, the present value of the sum of those withdrawals is ...

PV = P(1 -(1 +r/n)^(-nt))/(1 -(1 +r/n)^-1)

PV = P(1 +n/r)(1 -(1 +r/n)^(-nt))

for monthly withdrawal P, n=12, r=.06, t=20.

PV = $2000(1 +12/0.06)(1 -1.005^-240) = $280,557.35

You need $280,557.35 in your retirement account to support the planned set of payments.