All parts A B C You are 60 years old Currently you have 1000

You are 60 years old. Currently, you have $10,000 invested in an IRA and have just receiveda lump-sum distribution of $50,000 from a pension plan, which you roll over into an IRA. You continue to make $2000 annual payments to the regular IRA and expect to earn 9% on these funds until you start withdrawing the money at age 70, i.e., after 10 years. The IRA rollover will earn 9% for the same duration. a. How much will you have when you start to make withdrawals at age 70? b. If your funds continue to earn 9% annually and you withdraw $17,000 annually, how long will it take to exhaust your funds? c. If your funds continue to earn 9% annually and your life expectancy is 18 years, what is the maximum you may withdraw each year?

Solution

a Year 1 2 3 4 5 6 7 8 9 10 $60,000.00            2,000.00         2,000.00              2,000.00                      2,000.00                 2,000.00                          2,000.00                   2,000.00                      2,000.00                      2,000.00                  2,000.00 (50000+10000) Interest            5,400.00         6,066.00              6,791.94                      7,583.21                 8,445.70                          9,385.82                10,410.54                   11,527.49                    12,744.96                14,072.01 60000*0.09 67400*0.09 75466*0.09 84257.94*0.09 93841.15*0.09 104286.86*0.09 115672.68*0.09 128083.22*0.09 141610.71*0.09 156355.67*0.09 Cumulative Value(Previous year value+ current year investment + interest)         67,400.00      75,466.00            84,257.94                   93,841.15            104,286.86                     115,672.68              128,083.22                 141,610.71                  156,355.67          172,427.68 b Year 1 2 3 4 5 6 7 8                               9.00 10 $60,000.00            2,000.00         2,000.00              2,000.00                      2,000.00                 2,000.00                          2,000.00                   2,000.00                      2,000.00                      2,000.00                  2,000.00 Interest            5,400.00         4,536.00              3,594.24                      2,567.72                 1,448.82                              229.21                (1,100.16)                   (2,549.18)                    (4,128.60)                (5,850.18) Withrawls       (17,000.00)    (17,000.00)          (17,000.00)                 (17,000.00)            (17,000.00)                     (17,000.00)              (17,000.00)                 (17,000.00)                  (17,000.00)              (17,000.00) Cumulative Value(Previous year bal + current year investment+interest - withdrawal)         50,400.00      39,936.00            28,530.24                   16,097.96                 2,546.78                     (12,224.01)              (28,324.17)                 (45,873.35)                  (65,001.95)              (85,852.13) Funds will exhauste in 6 yrs c Using PMT Function in excel we get PMT(0.09,18,60000,172427.68) ($11,027.61)