A 65-year-old retiree expects to live for 20 more years, currently has $1,000,000, expects to earn a 8% rate per year on the investment, and expects inflation to average 3%. How much can the retiree withdraw at the beginning of each year and keep the withdrawals constant in real terms, i.e., growing at the same rate as inflation and thus enabling him to maintain a constant standard of living? Suppose after the last withdrawal the account balance gets down to zero. 

What if the annual withdrawal will be made at the end of each year?

Answer rating: 100% (QA)

To calculate the constant real withdrawal amount that the retiree can make at the beginning of each year we need to take into account the expected inv... View the full answer