Question

5. At the end of this month, you will start saving $150 a month for retirement through your company’s retirement plan. Your employer will contribute an additional $.50 for every $1.00 you save. If you are employed by this firm for 30 more years and earn an average 12 percent on your retirement savings, how much will you have in your retirement account 30 years from now?

Answer 1

Monthly Contribution by employee = $150
Monthly Contribution by employer = $150/2 = $75

Total Monthly Contribution = $150 + $75
Total Monthly Contribution = $225

Annual Interest rate = 12%
Monthly interest rate = 12%/12 = 1%

Time to Retirement = 30 years or 360 months

Accumulated Sum = $225 * FVIFA(1%, 360)
Accumulated Sum = $225 * (1.01^360 - 1) / 0.01
Accumulated Sum = $225 * 3494.9641
Accumulated Sum = $786,366.92

So, balance in retirement account after 30 years is $786,366.92