Question

Your aunt Suzie expects to live another 10 years. (Should she live longer, you are expected to provide for her.). She currently has $50,000 in savings which she wishes to spread evenly in terms of purchasing power over the remainder of her life. Since she feels inflation will average 6% annually, her annual beginning-of-year withdrawals should increase at a 6% growth rate. If she earns 8% on her savings not withdrawn, how much should her first withdrawal be?

Answer 1

The present value of the withdrawals should be equal to the present amount in savings.

The first withdrawal amount can be calculated as follows: