Question

Your employer offers a 401(k) plan with a 28% match, and you set a goal of retiring in 26 years with an amount of money which has the same buying power that 1.5 million dollars has today. If the account earns an annual interest rate of 3.7% and the expected annual rate of inflation is 1.2%, how much should you contribute each month? Round your answer to the nearest dollar.

Answer 1

Solution :-

Here , we need to find out the employee contribution per each month .

For that we need to calculate following terms,

Amount requires  26 years = $1.5 million * [ ( 1 + 1.2% ) ^26 ]

= $1,500,000 * [ 1.012 ] ^26

= $1,500,000 * 1.36361

= $ 2,045,430

Amount requires  26 years = $ 2,045,430

Given Interest rate = 3.7%

Duration = 26 years

Yearly contribution = PMT ( 3.7% , 26 years , - $ 2,045,430 ,0 ) by using excel function

= $123,828.21

Yearly contribution = $123,828.21

Given Match by employer =  28%

Finally,

Employee contribution = [ $123,828.21 / [ 100 + 28 ] ] * 100

= [ $123,828.21 / 128 ] * 100

= $967.4078 * 100

= $96,740.78

Employee contribution = $96,741

Employee contribution = $96,741

answered by: anonymous