You are planning to save for retirement over the next 30 years. To do this, you

Question

You are planning to save for retirement over the next 30 years. To do this, you will invest $780 a month in a stock account and $380 a month in a bond account. The return of the stock account is expected to be 9.8 percent, and the bond account will pay 5.8 percent. When you retire, you will combine your money into an account with a 6.8 percent return.

How much can you withdraw each month from your account assuming a 25-year withdrawal period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Future value of stock account = 780 * ((1+9.8%/12)^(30*12) - 1)/ (9.8%/12) = $1,689,703

Future value of bond account = 380 * ((1+5.8%/12)^(30*12) - 1)/ (5.8%/12) = $367,435

Total future value = $1,689,703 + $367,435 = $2,057,138

Let monthly withdrawal be $X.

So X*(1-1/(1+6.8%/12)^(25*12)) / (6.8%/12) = $2,057,138

i.e. X*144.077 = $2,057,138

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