Reference no: EM132255599

Todd Lohman, who just turned 35, expects to retire in 30 years when he turns 65. Mr. Lohman just passed Oklahoma's Licensed Plumbers LP exam, allowing him to bid on plumbing projects having a total cost less than $25,000. Mr. Lohman expects to earn $65,000 next year during his first year as an LP. The Southwest Economic Development Association expects yearly earnings for licensed plumbers to grow at 4.0 percent per year over the next 30years. Mr. Lohman plans to save for retirement by depositing 10 percent of his yearly income at the end of each of the next 30 years in a retirement account having an expected return of 8.5 percent over the next 55 years. Mr. Lohman's life expectancy is 55 years, allowing him to enjoy a 25-year retirement period, with yearly withdrawals from the retirement account at the beginning of each of his 25 years in retirement, beginning with an immediate withdrawal when he retires at age 65. Mr. Lohman requires a yearly retirement income stream having constant purchasing power during each year of retirement, so that the dollar amount of his retirement income must increase each year at the rate of inflation. Assuming that inflation is expected to be 2.5 percent per year, determine the maximum initial retirement income that Mr. Lohman can withdraw from the retirement account on the date that he retires in 30 years.