Question

Janessa is 29 years old and she is about to start her first full-time job. She is currently single, and she is willing to take the appropriate risk she needs to prepare for retirement. Her starting annual salary is $63,000 and she has no retirement savings yet. Her employer will match 100% of her contributions up to the first 4% of her salary to the company’s 401(k) account. Use this link to determine his retirement saving needs: http://money.cnn.com/tools/saveyoung/index.html The information below accompanies the table (on page 2):

Step 1: What amount do you recommend Janessa should be saving each year? Use this amount in the “Total” box in the table below. $7,371

Step 2: How much of the total annual savings should he be saving in his 401(k), a Traditional IRA, and/or a ROTH IRA? Put these amounts in the table in the “Amount” column.

Step 3: Why did you pick each amount? Put your explanation in the “Why did you choose this amount” section of the table.

Step 4: Employer offers the following 401(k) Investment Vehicle choices: Davis New York Venture Fund Class Y [DNVYX] Aberdeen Select International Equity Fund Class [JIEIX] Janus Asia Equity Fund Class A [JAQAX] Research a fund analyzer to look up and compare the funds Janessa has to choose from within his employer’s 401(k) plan. (focus on the fees, profits/losses). The following Traditional or Roth IRA choices: Target Date Fund Apple Stock 10 Year Treasury Note Your own choice (you must explain why) Pick the most appropriate choice from the lists above for the investment vehicles. Then type your choice in the “Investment Vehicle Choice” section of the table. Please note that when you finish the table, all the boxes may or may not contain data. It is OK to have N/A or zeros in some of the boxes as long as you provide your rationale as to why you put zero(s).

Step 5: Why did you pick each fund? Put your explanation in the “Why did you choose this fund” section of the table

Answer 1

1.

Amount Jenessa will save every year:

Amount offered by employer = %contribution x annual salary

= 4/100 x 63000

=.04 x 63000

= 2520

Hence, Jenessa will give $2520.

2.

Determine the amount of total annual savings that she would be saving in her 401(k) account;

Jenessa's total savings will be $4520 in which $2520 will be for 401(k) plan of the company.

3.

In the given case, there is an average return of 12% annually over the years. Assuming employer retires at 65, means she has 40 years to contribute for retirement.

formula =FV(.12,40,2520*2)

= 3866140.76

Amount of IRA

formula =FV(.12,40,2000)

=1534182.84

Employers total savings will be (3866140.76+1534182.84+1534182.84) $6934506.44