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You have an IRA worth $200,000 and want to start to make equal, annual withdrawals (i
You have an IRA worth $200,000 and want to start to make equal, annual withdrawals (i.e., distributions from the account) for 20 years. You anticipate earning 5 percent on the funds. (To facilitate the calculation, assume an annuity due.) a. How much can you withdraw each year? b. Since you are earning 5 percent on your investments, how much of the withdrawal consumes your investments? c. How much will be in the account at the end of the first year? d. How much do you earn on your investments in the account during the second year? e. How much will be in the account at the end of the second year?
SOLVE A THROUGH E USING A FINANCIAL CALCULATOR, NO FORMULAS.
Expert Solution
IRA worth = $200,000
Period = 20 years
Anticipate on Funding = 5%
1.)
How much can you withdraw each year?
=200000/PVA(20,5%)
=200000/12.462
= $16048.79
2.)
Since you are earning 5 percent on your investments, how much of the withdrawal consumes your investments?
=(16048.79-200000*5%)
= $6048.79
3.)
How much will be in the account at the end of the first year?
= 200000-6048.79
= $193951.21
4.)
How much do you earn on your investments in the account during the second year?
= 193951.21*5%
= $9697.56
5.)
How much will be in the account at the end of the second year?
= 9697.56+193951.21-16048.79
= $187599.98
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