Let’s explore retirement planning analysis by calculating the data and sketching a graph that shows the relationship between interest rate and length of the annuity, i.e. the period that monthly withdrawals are made from the retirement account.
Let’s assume that Joe has $500,000 in his retirement account on his 65th birthday. Assume that his first withdrawal is made one month after his 65th birthday.
a. Determine the maximum monthly withdrawal that can be made from the account for each combination of interest rate and annuity length listed below:
1) Interest rates of 3%, 6% and 9% per year, each compounded monthly.
2) Annuity terminating at ages 70, 75, 80 and 85.