Mr. X who is 70 & ready to retire. Owns home, mortgage paid off. He has accumulated savings of $100,000, invested yielding 9% interest & a $10,000 savings account @ 5% interest. Savings account is for emergency expenses only. He would like to spend $1,000 for living expenses and $300 monthly for travel. To live he will rely on his investment. Interest from investment is $9,000 per yr or $750 monthly. He will also receive $750 monthly in social security payments for the rest of his life, which increases with an inflation rate of 4%. It is assumed that the investment continues to yield @ 95 rate of return. Mr. X is expected to live for the next 20 years and use up all of his investment over that period. I need help in how to solve this problem to determine if what kind of advice to give Mr. X. How much can he afford to spend per month?
Number of months = 20*12 = 240
Yield rate = 9%
Since the yield rate is the same as the required return rate, the PV of the saving account is
PV1 = 100,000
FV2 = 10,000
Interest rate = 5%
Monthly interest income = ...
The expert determines how much Mr. X can afford to spend per month.