Question

A newly-graduated engineer begins her job on her 24th birthday, and beings contributing to her retirement...

A newly-graduated engineer begins her job on her 24th birthday, and beings contributing to her retirement account the following month. Her company has agreed to match her contributions up to 4% of her salary, so she elects to contribute 4% to get the full company match (so the total contribution to the fund is 8%). Her starting monthly salary is $5000, and it’s expected to increase an average of 3% per year (or 0.25% per month). Her nominal annual MARR is 9%, compounded monthly.

A) If her salary increases an average of 3% per year (0.25% per month) and she works at the company until her 50th birthday, how much will be in the account at that time?

B) If she changes jobs, but keeps the money in her original account until she retires on her 65th birthday, how much will be in her account at that time? You can assume that her nominal annual MARR remains at 9% compounded monthly.

C) Based on your answer from (b), how much can she withdraw each month if she wants the money to last indefinitely (i.e., forever?) if she begins withdrawing from the account when she’s 65 (i.e., the month after her 65th birthday)? You can again assume a MARR value of 9% for the entire time span.

(if using excel please post code)

Homework Answers

Answer #1

a) Her first payment, P = 5,000 x 8% = 400 including employer contribution. She will make 26 x 12 = 312 such payments till age 50.

Future value of the account can be calculated using FV formula

FV = P / (r - g) x [(1 + r)^n - (1 + g)^n]

where, P = 400, r = 9%/12 = 0.75%, g = 0.25%, n = 312,

=> FV = P / (0.75% - 0.25%) x [(1 + 0.75%)^312 - (1 + 0.25%)^312] = $648,931.10

b) Value at age 65, FV = PV x (1 + r)^n = 648,931.10 x (1 + 0.75%)^(12*15) = $2,490,625.64

c) Monthly withdrawal = Value x monthly rate = 2,490,625.64 x 0.75% = $18,679.69

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A newly-graduated engineer begins her job on her 24th birthday, and beings contributing to her retirement...
A newly-graduated engineer begins her job on her 24th birthday, and beings contributing to her retirement account the following month. Her company has agreed to match her contributions up to 4% of her salary, so she elects to contribute 4% to get the full company match (so the total contribution to the fund is 8%). Her starting monthly salary is $5000, and it’s expected to increase an average of 3% per year (or 0.25% per month). Her nominal annual MARR...
Mrs. Smith makes provision for her own pension. She invests $240 every month starting 1 month...
Mrs. Smith makes provision for her own pension. She invests $240 every month starting 1 month after her 30th birthday, into an account that pays 9% per annum compounded monthly. How much will she have on her 50th birthday?
Your friend is celebrating her 25th birthday today and wants to start saving for her anticipated...
Your friend is celebrating her 25th birthday today and wants to start saving for her anticipated retirement at age 65(she will retire on her 65th birthday). She would like to be able to withdraw $60,000 from her saving account on each birthday for at least 25 years following her retirement (the first withdrawl will be on her 66th birthday). Your friend intends to invest her money in the local savings bank which offers 5.5% per year. She wants to make...
On her 25th​ birthday, a young woman engineer decides to start saving toward building up a...
On her 25th​ birthday, a young woman engineer decides to start saving toward building up a retirement fund that pays​ 6% interest compounded monthly​ (the market interest​ rate). She feels that​ $1,000,000 worth of purchasing power in​ today's dollars will be adequate to see her through her sunset years after her 65th birthday. Assume a general inflation rate of​ 4% per year. ​(a) If she plans to save by making 480 equal monthly​ deposits, what should be the amount of...
Your friend is celebrating her 25th birthday today and wants to start saving for her anticipated...
Your friend is celebrating her 25th birthday today and wants to start saving for her anticipated retirement at age 65( she will retire on her 65th birthday). She woukd like to be able to withdraw $60,000 from her savings account on each birthday for at least 25 years following her retirement (the first withdrawl will be on her 66th birthday). Your friend wants to invest her money in the local savings bank which offers 5.5% per year. She wants to...
Your friend Ellen is celebrating her 25th birthday (i.e., she is 25 today) and wants to...
Your friend Ellen is celebrating her 25th birthday (i.e., she is 25 today) and wants to start saving for her anticipated retirement at age 55. She wants to be able to withdraw $10,000 from her savings account on each birthday for 10 years following her retirement (the first withdrawal will be on her 56th birthday). Ellen intends to invest her money in the local saving bank, which offers 8% (EAR) interest per year. Suppose Ellen wants to make 24 deposits...
Your friend is celebrating her 35th birthday today wants to start saving for her anticipated retirement...
Your friend is celebrating her 35th birthday today wants to start saving for her anticipated retirement at age 65. She wants to be able to withdraw $105,000 from her savings account on each birthday for 20 years following her retirement; the first withdrawal will be on her 66th birthday. Your friend intends to invest her money in the local credit union, which offer 7 percent interest per year. She wants to make equal annual payments on each birthday into the...
Grandparents plan to open an account on their grandchild's birthday and contribute each month until she...
Grandparents plan to open an account on their grandchild's birthday and contribute each month until she goes to college. How much must they contribute at the beginning of each month in an investment that pays 9%, compounded monthly, if they want the balance to be $120,000 at the end of 18 years?
Molly Mae recently graduated from MTU, and her first student loan payment is due soon. In...
Molly Mae recently graduated from MTU, and her first student loan payment is due soon. In total, Molly Mae borrowed $50,000 to complete her degree. She plans to repay her loans using the standard repayment plan (i.e. with monthly payments at the end of every month for 10 years) a. Assume the nominal interest rate is 4.0% per year, compounded daily (assume 30 days per month). Calculate the effective Annual interest rate for Molly Mae's student loans b. Assume the...
Renee age 37 begins a new job and is offered group term life insurance at her...
Renee age 37 begins a new job and is offered group term life insurance at her company. Her salary will be $125,000 per year and the company provides at no charge group term life insurance of 1x annual salary. She also has the option to purchase, and pay a monthly premium via salary deduction for up to 4 x salary with no medical exam. She can also purchase up to 10 x her salary but must provide evidence of insurability....