How much can Mr. Road spend each year? First let’s see what happens if we ignore inflation.
1. Account for Social Security income of $750 per month, or $9,000 annually.
2. Account for the income from the savings account. Because Mr. Road does not want to run down the balance of this account, he can spend only the interest income:
0.05  $12,000 = $600 annually
3. Compute the annual consumption available from his investment account. We find the 20-year annuity with present value equal to the value in the account:
Present Value = annual payment  20-year annuity factor at 9% interest rate:
PV = annual payment
$180,000 = annual payment  9.129  Annual payment = $180,000/9.129 = $19,717
Notice that the investment account provides annual income of $19,717, which is more than the annual interest from the account. This is because Mr. Road plans to run the account down to zero by the end of his life.
So Mr. Road can spend: $19,717 + $600 + $9,000 = $29,317 per......

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Title: Mr. Alfred Road
Approximate Word Count: 714
Approximate Pages: 3 (250 words per double-spaced page)

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