You are planning to save for retirement over the next 35 years. To do this, you

Question

You are planning to save for retirement over the next 35 years. To do this, you will invest $740 a month in a stock account and $340 a month in a bond account. The return of the stock account is expected to be 9.4 percent, and the bond account will pay 5.4 percent. When you retire, you will combine your money into an account with a return of 6.4 percent. How much can you withdraw each month from your account assuming a 30-year withdrawal period? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

First calculate the FV of the investment made in 35 years

Value of stock investment in Year 35 = FV(9.4%/12,35*12,-740,0,0) = $2,409,027.13

Value of bond investment in Year 35 = FV(5.4%/12,35*12,-540,0,0) = $422,458.57

Total value in Year 35 =  $2,409,027.13 + $422,458.57 = $2,831,485.70

Now this total amount is invested in a account which fetches interest of 6.4%, So monthly withdrawal amount can be calculated using the formula below

=PMT(6.4%/12,30*12,-2831485.7,0,0) = $17,711.11

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