I’m always testing AI chat to see just how complex a question it can solve, because it’s fun. In one of my latest trials, I was curious to know the answer to the following scenario (which I queried via Bing Chat):
“I have $500,000 to invest and withdraw from over a period of 20 years. By the end of the 20 years, I don't want any money left. What kind of withdrawal schedule would maximize my earnings over those 20 years if the money was being invested in a GIC with an interest rate averaging 5% per year?”
Its answer:
“To determine the withdrawal schedule that would maximize your earnings over 20 years, you can use the annuity formula. An annuity is a series of equal payments made at regular intervals. In this case, the payments are the withdrawals you’ll be making each year.
The formula for an annuity is:
PMT=PV×r(1+r)exponent n / (1+r) exponent n - 1
where:
PMT is the annual withdrawal amount
PV is the present value or initial investment, which is $500,000
r is the annual interest rate, which is 5% or 0.05
n is the number of periods, which is 20 years
Solving this equation will give you the annual withdrawal amount that would maximize your earnings over 20 years while ensuring that you have no money left at the end of the period.
Please note that this calculation assumes that the interest rate remains constant over the entire period, which may not be the case in reality. It’s always a good idea to consult with a financial advisor for personalized advice.”
So I prompted it to solve the equation with the parameters I offered:
“After solving this equation, the annual withdrawal amount (PMT) comes out to be approximately $40,975.62.
This means that if you withdraw approximately $40,975.62 each year, you would maximize your earnings over 20 years and have no money left at the end of the period. Please note that this calculation assumes that the interest rate remains constant over the entire period, which may not be the case in reality.”
Outstanding.
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