Question

You inherit $300,000 from your parents and want to use the money to supplement your retirement. You receive the money on your 65th birthday, the day you retire. You want to withdraw equal amounts at the end of each of the next 20 years. What constant amount can you withdraw each month and have nothing remaining at the end of 20 years if you are earning 7% interest compounded monthly? Select one:

a. $2,943
b. $1,829
c. $2,326
d. $1,200

Answer 1

The constant monthly withdrawal amount can be calculated by using PMT function in excel as in =PMT(rate,nper,pv) where rate = 7% = 0.07/12 (Monthly rate), nper = 20 years = 20*12 = 240 months and pv = 300,000

Constant monthly withdrawal amount =PMT(0.07/12,240,300000)

Constant monthly withdrawal amount = $2,325.90

Constant monthly withdrawal amount = $2,326 (Option C)