Question

odi is retiring at the age of 65. When she retires, she estimates that she will need a monthly income for 25 years. If Jodi starts with $328,133.32 in an account that pays 6.2% interest compounded monthly, approximately what monthly income will she be able to draw?




a.
$2,665
b.
$2,154
c.
$1,948
d.
$1,094

Answer 1

Use the present-value of an ordinary annuity formula:
PMT = PV * r / (1 - (1 + r)^(-n))

Here r = 0.062/12 = 0.0051666667, n = 25*12 = 300, PV = 328,133.32.

PMT = 328,133.32 * 0.0051666667 / (1 - (1.0051666667)^(-300)) ≈ 2,154.41

So the closest choice is (b) $2,154.