Problem
You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,250 a month in a stock account in real dollars and $550 a month in a bond account in real dollars. The effective annual return of the stock account is expected to be 10 percent and the bond account will earn 6 percent. When you retire, you will combine your money into an account with an effective annual return of 9 percent. The inflation rate over this period is expected to be an effective annual rate of 3 percent.
a) How much can you withdraw each month from your account in real terms assuming a withdrawal period of 25 years?
b) What is the nominal dollar amount of your last withdrawal?