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Does anyone know the formulae for calculating how long a total investment earning a fixed rate of interest will last if you withdraw a fixed amount each month. For example How many months will $100,000 invested at 8% last if I withdraw $1,000 each month?
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SAHO: "Does anyone know the formulae for calculating how long a total investment earning a fixed rate of interest will last if you withdraw a fixed amount each month. For example How many months will $100,000 invested at 8% last if I withdraw $1,000 each month?"

For a ballpark figure, I ran it as a loan amortization, 100k @ 8%, with $1000 monthly payments, and the answer is slightly less than 14 years (13 years, 9 months, plus approx. $341); it likely is off a little depending upon the compounding frequency for your investment. Futhermore, this answer assumes that the investment is actually returning 8% every year (actually .75%/month).


If you are using an investment that has a long-term CAGR of 8% but that is volatile, then the answer may be a much shorter period. Using average rates of return is generally acceptable when doing accumulation calculations, but it can be a disaster when calculating withdrawals. This issue has been discused ad infinitum on The Retire Early board (in Speakers' Corner) and its related Retire Early Home Page.

Regards, JAFO
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SAHO: "Does anyone know the formulae for calculating how long a total investment earning a fixed rate of interest will last if you withdraw a fixed amount each month. For example How many months will $100,000 invested at 8% last if I withdraw $1,000 each month?"

I also note that you have not addressed inflation when assuming $1000/month withdrawal. With only modest inflation, $1000/month in year 10, for example, will not come close to the purchasing power of $1000 today.

Regards, JAFO
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There are a number of calulators available at different sites that will do this for you. Check out www.piperjaffray.com/si to see if one of their calculators will meet your needs. There is a formula that you can use to do this with a spreadsheet. I will try to find it on one of my spreadsheets and post it later.

glenn
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Author: SAHO Date: 12/10/00 6:33 PM Number: 26524
Does anyone know the formulae for calculating how long a total investment earning a fixed rate of interest will last if you withdraw a fixed amount each month. For example How many months will $100,000 invested at 8% last if I withdraw $1,000 each month?

If you have Excel, there is a function:

=NPER((8/12)%,-1000,100000)

8/12% is the monthly interest rate
-1000 is the monthly withdrawal
100000 is the starting amount

Answer is: 165.3405411 months
Divide that by 12 to get 13.77837843 years

However, I want to emphasize that this will be correct only if the interest rate doesn't fluctuate at all (as with a CD). However, as soon as the interest fluctuates (like with stock market investments) the number of months goes down. You can download free Excel spreadsheets to look at this on the Retire Early website: http://home.earthlink.net/~intercst/reindex.html

These spreadsheets use actual historical data over all time periods to figure out the percentage of time your funds will last a particular period under historical market conditions. This is much more realistic than the above formula if you plan to have any of your money in the stock market.

Russ


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