9 You are 30 years old and you make $ 110,000 per year. You calculate that you c

Question

9 You are 30 years old and you make $ 110,000 per year. You calculate that you can’t retire until you have accumulated a lump sum amount of $ 2,000,000 to live on after retirement. You contribute 6% of your salary to your 401(k) and your employer contributes 3% of your salary. You plan on investing 65% of your funds in equities on which you expect to earn an average rate of return of 10%, and the rest in bonds projected to earn 5%. If your salary does not grow, how old will you be when you can retire?

Explanation / Answer

Employees Contribution per year = $ 110000 * 6% = $ 6600

Employer = $ 110000 * 3 % = $ 3300

Total Contribution per year = 6600+ 3300 = $ 9900

Expected Rate of Return = ( 0.65 * 0.10) + ( 0.35 *0.05) = 0.0825 or 8.25 %

$ 9900 * ( FVIFA(8.25 %,N) ) = $ 2000000

N = 36.20 years

The retirement Goal = 30+36.20 = 66.20 years

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