You retire at age 60 and expect to live another 27 years. On the day you retire,you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny?

Question

Quizplus · Accepted Answer

We can use the formula for present value of an annuity to calculate the monthly withdrawals that can be made:

PV = A * [(1 - (1+i)^-n)/i]

where PV is the present value of the withdrawals, A is the amount of each withdrawal, i is the interest rate per period (monthly in this case), and n is the number of periods (months in this case).

Plugging in the given values, we get:

$464,900 = A * [(1 - (1+0.045/12)^-324)/(0.045/12)]

Solving for A, we get:

A = $2,481.27

Therefore, the best choice is E with a monthly withdrawal amount of $2,481.27.

You Retire at Age 60 and Expect to Live Another