Certified Financial Planner (CFP) Exam 2026 – 400 Free Practice Questions to Pass the Exam

To determine the internal rate of return required for Hannah, we need to consider both the annual withdrawals and her ultimate desire to leave $1,000,000 to her heirs after 35 years. The internal rate of return is a critical measure in financial planning, as it reflects the rate of growth necessary for investments to meet specific future financial goals.

In this scenario, Hannah plans to withdraw $100,000 annually for the first 25 years. This means she will deplete her investment significantly during this time. After 25 years of withdrawals, she then wishes to ensure that there is still $1,000,000 remaining after a total of 35 years. Therefore, we must calculate the future value needed to grow to this goal while taking into account both her withdrawals and the investment period.

Using the present value formula and considering the withdrawals, Hannah’s investments need to yield a rate of return high enough to allow for those annual withdrawals while still allowing her to accumulate $1,000,000 over the next 10 years.

The internal rate of return that satisfies both conditions—sustaining the withdrawals and achieving the desired future value—is found through financial calculations or using an appropriate financial model. The calculations lead to 7.09% as the