You are planning your retirement in 10 years. You currently have $177,000 in a b

Question

You are planning your retirement in 10 years. You currently have $177,000 in a bond account and $617,000 in a stock account. You plan to add $6,300 per year at the end of each of the next 10 years to your bond account. The stock account will earn a return of 10.75 percent and the bond account will earn a return of 7.25 percent. When you retire, you plan to withdraw an equal amount for each of the next 23 years at the end of each year and have nothing left. Additionally, when you retire you will transfer your money to an account that earns 6.5 percent. How much can you withdraw each year in your retirement? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Amount in bond after 10 years = FV of 177,000 of 10 year + FV of a pmt of 6300 per year for 10 years

Amount in bond fund = fv(0.0725,10,0,177000,0) + fv(0.0725,10,6300,0,0) = $444,485.31

Amount in stock fund = fv(0.1075,10,0,617000,0) + fv(0.1075,10,6300,0,0) = $1,816,951.11

Total amount = 2,261,436.42

Now this amount is put in an account of 6.5% interest and a fixed amount is withdrawn each year.

This is given by = pmt(0.065,23,2261436.42) = $192,133.40

Annual withdrawal amount = $192,133.40

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