Question

Jimmy has $255,906 accumulated in a 401k plan. the fund is earning a low, but safe, 3% per year. the withdrawals will take place at the end of each year starting a year from now. how soon will the fund be exhausted if jimmy withdraws $30,000 each year?

Answer 1

In this problem, we have to calculate the number of years it takes to fully exhaust the fund if Jimmy withdraws 30,000 per year

This can be calculated using NPER function in excel as in =NPER(rate,pmt,pv) where

RATE = annual interest rate = 3% = 0.03

PMT = annual withdrawal amount = 30000

PV = Present value of accumulated savings = 255906

Number of years =NPER(0.03,-30000,255906) = 9.9999 years = 10 years

(Note the PMT is input with a negative sign since it is a withdrawal and is a cash outflow)

Number of years it takes to completely exhaust the fund = 10 years