Overview

Main Menu Name: Withdraw

Calculates the amount of income that can be withdrawn regularly from a fund given a specified interest rate, the number of withdrawals per year, and the given number of years. It also calculates the total of the interest and principal that will be withdrawn over the given period of time, and the total interest to be earned.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

It is often necessary to compute how much could be withdrawn at given intervals from a fund earning interest at a certain rate for a specified period. For instance, a person who has just retired may have saved $60,000. His life expectancy is 10 years and he feels that he could easily earn (net after taxes) 9 percent on his money. He wants to know how much he could withdraw each year so that at the end of the 10 years, he will have exhausted his fund.

An alternative use for the same calculation is the amortization of a loan. You have a $30,000 loan for 10 years at nine percent. How much is each payment you must make?

Stated another way, assume you have loaned $30,000 for 10 years at 9 percent. How much will you be paid each year?

To compute the amount of cash you must invest at the beginning of a specified period, if you assume you will be making withdrawals of a given amount, use the "present value of an annuity" program.

Why should I use this calculator?

• Test the adequacy of non-qualified and other retirement plans to meet income objectives (you may find that a seemingly large amount may be inadequate when taken as a payout over long periods of time.
• Check the reasonableness of assumptions made in retirement and other planning involving a "takedown" of a fund.
• Establish installment payout feasibility.

Getting Started

Time value calculations are based on five variable components: interest rate, time, present value, periodic payment, and future value.

Interest be defined as the price for using someone else's money (it is also used to denote the "discount rate," that is, the cost of exchanging money now for money later).

Time is the duration of a span or period.

Present value is the measure of worth placed on money held or received right now.

Future value, the opposite of present value, is the measure of the worth of money to be received at the end of the period of "Time."

This calculation is based on the fact that if any three of these variables are known, the unknown variable can be found. The unknown in many retirement or college education plans is, "given a fund of a specified size, and assuming a specified rate of interest, how much can I safely take each year over a specified number of years and just exhaust the fund? This same unknown occurs in pension and non-qualified deferred compensation planning.

Entering Data

1. Initial Investment:  Enter the initial investment.
2. Effective Annual Interest Rate:  Enter the effective annual interest rate of the investment.
3. Number of Withdrawals per Year:  Enter the number of withdrawals per year.
4. Number of Years:  Enter the total number of years over which withdrawals will be made.

Results

The program calculates the allowable amount of each withdrawal, the total amount (principal plus interest) to be withdrawn, and the total interest to be earned.