Question

Pete Peterson is 66 years old and has just attended his retirement party. He has amassed $1.36 million in retirement savings. He and his spouse have figured out that during retirement they need to withdraw $100,000 at the end of each year from their retirement savings to maintain the standard of living that they would like to have.
1. If they can earn 4% interest on the unspent balance in their retirement account, how many years will it be before their retirement savings are exhausted?
O 14
O 17
O 20
O 23
O 26

Answer 1

Answer:

17 years afters the 1st retirement.

Explanation:

Folowing the rule of 4% per year and substracting $100,000 every January 1st, Pete will be depleting his retirement fund in 17 years. The calculation is simple:

Unspent balance Year 2: 1,360,000-100,000=1,260,000.

Unspent balance Year 3: (1,260,000*(1+0,04))-100,000=1,210,400.

Unspent balance Year 4: (1,210,400*(1+0,04))-100,000=1,158,816

and so on until depletion