Your older brother turned 35 today, and he is planning to save $7,000 per year for retirement, with the first deposit to be made one year from today.He will invest in a mutual fund that's expected to provide a return of 7.5% per year.He plans to retire 30 years from today, when he turns 65, and he expects to live for 25 years after retirement, to age 90.Under these assumptions, how much can he spend each year after he retires? His first withdrawal will be made at the end of his first retirement year.
A) $58,601
B) $61,686
C) $64,932
D) $68,179
E) $71,588

Question

Quizplus · Accepted Answer

To determine how much he can spend each year after retirement, we first calculate the future value of his savings at retirement using the future value of an annuity formula. Then, we use the annuity formula to find the annual withdrawal amount that depletes the account to zero over 25 years. The correct calculation results in an annual withdrawal of $64,932.

Your Older Brother Turned 35 Today, and He Is Planning