Finance – retirement – 1 problem
A person makes a stable income of $100,000/year every year and saves 10% ($10,000/year) which is invested at a real (after inflation) rate of 3% in order to retire in 30 years. At retirement time will have a nest egg of about $475K. (FV = ? PV = 0, PMT = -10K, I/Y = 3, n=30 or =FV(3,30,-10K)
If this person wants the money to last 30 additional years (retirement period), he/she can withdraw a maximum of $28K annually (PMT = ?, PV = $475K (or $560K), n=30, fv = 0 and I/Y = 3 or =PMT(3,30,
On the attachment is an EXCEL worksheet showing a different example. Make up your own. Discuss the results.
Here it is using EXCEL: If you save $A per year for N years and earn I interest (in decimals) or return on your money you will have accumulated =FV(I, N,A)
Then if you want to see the maximum fixed amount you can withdraw each year for N years given the FV amount above and earning I return on your money, the amount is =PMT(I,N,0,FV).
Of course in both calculations either FV or the other amount must be negative, but you can interpret the result correctly.