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Newsletter

2011 2nd Edition (Other Editions)

WITHDRAWALS FROM AN INVESTMENT

It is often necessary to compute how much could be withdrawn at given intervals from a fund earning interest at a certain rate for a specified period of time.

For instance, a person who has just retired may have saved $6,000,000. He wants to maximize his retirement income for the next 10 years, and he feels that he could easily earn 9% on his money. He wants to know how much he could withdraw each year so that at the end of the 10 years, he will have exhausted his fund.

An alternative use for the same calculation is the amortization of a loan. You have a $6,000,000 loan for 10 years at 9%. How much is each payment you must make? ***

Stated another way, assume you have loaned $6,000,000 for 10 years at 9%. How much will you be paid each year?

To compute the amount of cash you must invest at the beginning of a specified period, if you assume you will be making withdrawals of a given amount, use the "present value of an annuity" program.

MAKING THESE CALCULATIONS

It will be much easier if you have a financial calculator or a computer program, but if you have an investment or mortgage chart, you can still obtain the number.

You will need to have the initial amount, the interest (return) rate and the number of years. The calculations using a mortgage table are normally done monthly. A financial calculator can easily do the annual payment calculations, and with a bit of experience, you can calculate monthly or quarterly payments.

Increased frequency calculations require you to divide the interest rate by 4 or 12, and multiply the term of years by the same number. The total payments will not be identical to the annual calculation due to the varying amount of earnings.








*** Answer: $934,920/year