A client plans to retire in 15 years and will need to withdraw $50,000 from his retirement account each year for 10 years, beginning on the day he retires. After that, he will need to withdraw $20,000 per year for 25 years. The account returns 4% annually. The amount he needs to have in the account on the day he retires is closest to:
A. $580,000
B. $640,000
C. $655,000
Unfortunately, myBA2+ is at the office. But here are the keystrokes so you can work it out:
Using the cash flow register:
CF0=50,000; (NOTE: This must be CF0, since it’s immediate)
C01=50,000 F01 = 9; (NOTE: there are 10 cash flows of $50,000, but we acounted for the first one as CF0)
C02=20,000; F02=25;
NPV@4% = ??=
NOTE: corrected a typo so that folks wouldn’t get confused - initially I had put C01=15,000. It should have been CO1=50,000.
small correction
C01=50,000 F01 = 9; (NOTE: there are 10 cash flows of $50,000, but we acounted for the first one as CF0)
gives 641283 …
ans (b)
thanks so much. you really simplified it. made it so easy. was a real headache this one.
Glad to help.