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over the past 30 years your parents saved money each month for their retirement. they retired last week and expect to live another 28 years. their investment account is currently valued at $487,300 and is expected to earn 7 percent annually in the future. how much money can they withdraw annually if they wish to spend all of their money during their lifetime?

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ayune

With current investment of  $487,300 and 7% interest, your parents can withdraw $6,038.6 per year.

The annual withdrawal is considered as an annuity. The formula that relates the present value and the annuity is given by:

PV = PMT x [1 - (1 + r)ⁿ]/r

Where:

PMT = amount of annuity payment

r = interest rate per period

n = number of periods

Parameters given in the problem:

PV = $487,300

n = 28

r = 7% = 0.07

Plug these parameters into the formula:

487,300 = PMT x [1 - (1 + 0.07)²⁸]/0.07

PMT = 487,300 x 0.07 /  [1 - (1.07)²⁸] = 6038.6

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