Question
Asked Sep 29, 2019

If you have $375,000 saved for retirement, how many years will it last if you earn an annual interest rate of 9% and withdraw $30,000 at the end of each year?

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Expert Answer

Step 1

Perpetuity can be defined as the series of fixed cashflow in equal interval for an indefinite period.

It is given that,

Present value of saving is $375,000.

Annual cashflow is $30,000.

Interest rate is 9%.

Step 2

The formula to calculate the interest earned over the year is given below:

Interest earned =Principle amount at start of the yearxInterest rate
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Interest earned =Principle amount at start of the yearxInterest rate

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Step 3

The interest amount earned by the individual is higher than the withdrawal amount. This means that the principle amount at the start of next year will be higher ...

Interest earned in first year $375,000x0.09
=S33,750
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Interest earned in first year $375,000x0.09 =S33,750

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