Maria expects to have $750,000 in her retirement savings plan when she retires. From that, she plans to take out $4,500 at the beginning of every month for 30 years. What annual effective rate of interest will her money have to earn over the 30 years?

Question

Quizplus · Accepted Answer

The scenario described is an example of an annuity due, where payments are made at the beginning of each period. To find the effective annual interest rate that allows Maria to withdraw $4,500 at the beginning of every month for 30 years from an initial amount of $750,000, we can use financial calculators or software designed for time value of money calculations. Given the complexity and the specific numbers involved, the calculation would typically involve solving for the interest rate that satisfies the equation for the present value of an annuity due. The correct answer, 6.225%, indicates the annual effective rate of interest required to meet Maria's retirement withdrawal goals.

Maria Expects to Have $750,000 in Her Retirement Savings Plan