Question

Asked Jan 14, 2019

Assume that you are 39 years old planning for your future retirement at age 65. You think that you will be comfortable living on the proceeds from a $1,000,000 401K Retirement Account.

Assuming that when you do retire, you will re-direct your $1,000,000 investment portfolio into less volatile and more secure mutual funds. You expect that, invested in these sources, your portfolio will securely earn 4.5% annually. Based on your assumptions and the normal life expectancy of an American male or female (respective to yourself), without consuming any of your principal, how much money will you have on a monthly basis to support your life?

Step 1

The retirement kitty amount = 1,000,000

Interes rate earned = 4.5% per annum

Frequency of withdrawl = monthly

Hence interesr rate per month =4.5% / 12 = 0.375% = 0.00375

Step 2

Based on life expectancy, let's make an assumption that subject in the question lives upto 90 years of age. Retirement age = 65 years. Balance period in years = 90 - 65 = 25 years.

Balance period in months = 25 x 12 = 300

Step 3

So, monthly payment supported by this retirement kitty can be calculated using the PMT function of ...

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