Your sister turned 35 today and she is planning to save $7,500.00 per year for r

Question

Your sister turned 35 today and she is planning to save $7,500.00 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that's expected to provide a return of 7% per year. She plans to retire 30 years from today, when she turns 65, and she expects to live for 20 years after retirement, to age 85. Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

Explanation / Answer

Amount available at time of retirement = Amount *FVAF @7%,30

                                                       = 7500 * 94.46079

                                                      = $ 708,455.90

Amount to spend each year = Amount available /PVAF@7%,20

                                            = 708,455.90 / 10.59401

                                                       = $ 66,873.25 each year

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