Certainly! Let's solve this step by step to determine the monthly withdrawal amount from your retirement savings.
### Step-by-Step Solution:
1. Principal Amount (P):
- You have a principal amount of [tex]$500,000 saved for retirement.
2. Annual Interest Rate (r_annual):
- The annual interest rate earned on the account is 7%, which we can represent as 0.07.
3. Number of Years (t):
- You want to make withdrawals for 15 years.
4. Convert Annual Interest Rate to Monthly Interest Rate:
- The annual interest rate needs to be converted to a monthly interest rate because withdrawals are made monthly.
\[
r_{monthly} = \frac{r_{annual}}{12} = \frac{0.07}{12} \approx 0.005833
\]
5. Calculate the Total Number of Withdrawals:
- Since withdrawals are made monthly over 15 years, we need to find the total number of months:
\[
n = t \times 12 = 15 \times 12 = 180
\]
6. Using the Annuity Formula to Calculate Monthly Withdrawals:
- We can use the annuity formula to determine the monthly withdrawal amount (PMT):
\[
PMT = \frac{P \times r_{monthly} \times (1 + r_{monthly})^n}{(1 + r_{monthly})^n - 1}
\]
- Plugging in the known values:
\[
PMT = \frac{500,000 \times 0.005833 \times (1 + 0.005833)^{180}}{(1 + 0.005833)^{180} - 1}
\]
7. Calculate the Monthly Withdrawal Amount:
- Substituting the calculated values into the formula gives us the monthly withdrawal amount:
\[
PMT \approx 4494.14
\]
### Conclusion:
If you have $[/tex]500,000 saved for retirement with an annual interest rate of 7%, you will be able to withdraw approximately $4494.14 each month for 15 years.
