Question: This is a question to be solved using Analytic Solver on Excel. Client A is has a $1,000,000 in a retirement account. She begins making
This is a question to be solved using Analytic Solver on Excel.
Client A is has a $1,000,000 in a retirement account. She begins making withdrawals at the age of 60 (at the beginning of the year on her birthday) and continues to every year onwards. Returns on the retirement portfolio are expected to be normally distributed with a mean of 8% and standard deviation of 2%. Inflation rate will be 3% (after the first year's withdrawal amount, the withdrawal for each subsequent year will increase by 3%).
Assuming his client lives until age 80, what is the maximum amount he should advise his client to withdraw on her 60th birthday, such that the probability the client will run out of money before her death is a maximum of 5%? If she lives until age 80, how much should the client expect to leave to her heirs by following the his advice?
I know that I am supposed to use randomly generated numbers to calculate the returns on the retirement portfolio using =PsiNormal(8%,2%). However, I am not sure what the output cells are, and which formulas to use in order to find the first withdrawal amount, while also limiting the probability of running out of funds before her death to 5%.
What formulas should I use?
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