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I'm trying to determine what the monthly payouts would be based on the following information.

Starting Amount: $\$500,000$

Interest Rate: $3.5%$ monthly

Deplete over $20$ years ($240$ months)

How much will be disbursed from this account each month? Can this be distributed evenly over each month?

I've tried the following with the accompanying table:

Check Amount = Amount / Months Remaining

Amount = (Prior Month Amount - Prior Month Check Amount) + (Prior Month Amount * Interest Rate)

Months Remaining Amount Interest Check Amount
240 500000.00 0.035 2083.34
239 515416.67 0.035 2156.56
238 531299.69 0.035 2232.35

With each month, the Amount Remaining continues to grow. This is wrong as I am looking to deplete the account to 0 over 20 years.

beingmathematician
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Dr RobotNick
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    This is a classic annuity problem. Find an annuity with the given interest and duration with a present value of 500k. – Gregory Jun 15 '22 at 12:06
  • Based on the annuity formula, I am getting a value of $2,899.80 per month. Does this sound correct? @Magdiragdag – Dr RobotNick Jun 15 '22 at 12:28
  • That is not even close to correct. 3.5% of 500000 is 17500 and then you're not even depleting the principal. – Magdiragdag Jun 15 '22 at 12:39
  • @Magdiragdag 
    P = ((0.035/12)*500,000) / (1 - (1 + (0.035/12)) ^-240) =$2,899.80

    Am I incorrectly determining the value for r?

     – Dr RobotNick Jun 15 '22 at 12:53
  • Where does the /12 come from? Your interest rate is 3.5% per month and that is also what you use in your table. If your interest rate is really 3.5%/12 per month - which is much more reasonable - then you immediately have a reason why your account remaining grows in your table: you're computing the wrong interest. Using that, and assuming you're withdrawing at the end of every month, 2899.80 is correct. – Magdiragdag Jun 15 '22 at 14:16

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