Can you help me with this finance problem?

**bjl584** · 03-29-2015, 01:22 PM

I wish I knew where Mr Roads got 5% interest on a savings account.

**rennigade** · 03-29-2015, 02:02 PM

Originally posted by bjl584 View Post

I wish I knew where Mr Roads got 5% interest on a savings account.

I think Mr Roads is telling a fib.

**Petunia 100** · 03-29-2015, 02:17 PM

Set up a spreadsheet. It will take a little time, but it's not difficult.

**herdjohnson** · 04-10-2015, 05:46 AM

Mr. Road did his own homework, that's why he's in such great shape financially

**mrpaseo** · 04-11-2015, 09:19 AM

Someone check my math here:

Originally posted by Arthur22 View Post

I have to solve a finance problem and I'm not very sure how to tackle it :/

Suppose Mr road will live 20 more years.

Mr. Road has 180'000 invested yielding 9% interest, he also has 12'000 in a savings account yielding 5%. He wants to keep the savings account intact for unexpected expenses.

He plans to have living expenses of 1'500 a month and plans to spend 500 a month on travel and hobbies.

Mr. Road will also receive 750 per month from social security payments for the rest of his life.

His living and hobby expenses, as well as the 750 a month from social security payments will increase with inflation which is 4%. The 9% from the investments will not increase with inflation.

1. Can he spend all the interest from his investment portfolio ?

2.How much could he withdraw at year end if he want to keep his real value intact?

3.If he is willing to use up all the investment portfolio during those 20 years, how much can he afford to spend per month?

Do you guys have any idea how I could solve this?
Thanks in advance!

Alright, let's hit these one at a time.

If he intends to spend his investments over 20 years earning 9%, he will be able to spend $9,000 per year from the principle. Removing the $9,000 per year and applying 9% tot he remaining balance, he will earn $15,390 in the first year. Total spendable from the Investments in the first year will be $15,390.00

Investments Principle:
Annual: $9,000
Monthly: $750

Investment Interest:
Annual: $15,390.00
Monthly:$1,282.50

SSI
Annual: $9,000.00
Monthly: $750.00

Savings:
Annual: $600
Monthly: $50

With this, in the first year, he will have:

$750 = $1,282.50 + $750.00 + $50 = $2,832.50 (Per month)

This will preserve his Savings (He will only spend the interest earned) but will liquidate the investments and spend all of the SSI monthly.

Does this sound accurate? I have the breakdown for the rest of the 19 years.

**mrpaseo** · 04-11-2015, 09:35 AM

Here is what he will be able to spend monthly in each year (If he earns the percentages you started with). At the end of 20 years, he will have his same $12,000 savings. His investments will be liquidated.

YEAR Monthly
20--- $2,832.50
19--- $2,795.00
18--- $2,758.70
17--- $2,723.65
16--- $2,689.89
15--- $2,657.49
14--- $2,626.49
13--- $2,596.95
12--- $2,568.93
11--- $2,542.48
10--- $2,517.68
9--- $2,494.59
8--- $2,473.27
7--- $2,453.81
6--- $2,436.26
5--- $2,420.71
4--- $2,407.24
3--- $2,395.93
2--- $2,386.86
1--- $2,380.14

**mrpaseo** · 04-11-2015, 09:44 AM

Here is the bad news. If his expenses are going to go up 4% per year, here is what his expenses will be.

This is per months expenses for each year.

YEAR EXPENSES
20--- $2,000.00
19--- $2,080.00
18--- $2,163.20
17--- $2,249.73
16--- $2,339.72
15--- $2,433.31
14--- $2,530.64
13--- $2,631.86
12--- $2,737.14
11--- $2,846.62
10--- $2,960.49
9--- $3,078.91
8--- $3,202.06
7--- $3,330.15
6--- $3,463.35
5--- $3,601.89
4--- $3,745.96
3--- $3,895.80
2--- $4,051.63
1--- $4,213.70

**mrpaseo** · 04-11-2015, 09:53 AM

Unless he changes a variable, he will only last about six years on this plan.

If he moves his expenses to 1% more annually (Instead of 4%), he will just miss the 20 year goal by a few hundred dollars.

Can you help me with this finance problem?