Fred Norton is putting 8% of his salary per year into his sponsored personal ret

Question

Fred Norton is putting 8% of his salary per year into his sponsored personal retirement plan. His annual salary is $50,000. Assume the annual investments earn 5% annually.

The following future value and present value factors are available:
Fut. Value Present Value
5%, 30 years 66.439 15.372
7%, 30 years 94.461 12.409
4%, 15 years 20.024 11.118

a. Compute how much the retirement plan amount will be at the end of 30 years.

b. Assume Fred takes a more aggressive investment approach and earns a return of 7% instead. Compute how much more he would have in his retirement account at the end of the 30 years.

c. Assume when Fred retires he has $320,000 in his retirement plan. The plan will earn a 4% rate of return over his anticipated 15 years of retirement. Compute the amount Fred could withdraw from the retirement plan each month over the 15 years.

Explanation / Answer

a)

Retirement plan amount:

= $50,000×8%×66.439

= $265,756

B)

. Retirement plan amount:

= $50,000×8%×94.461

= $377,844

c)

Present value of annuity = P×[1-(1÷(1+r)^n)]÷r

r is interest rate per period

P is payment per period

n is number of payments

$320,000 = P×[1-(1÷(1+(4%÷12))^(15×12))]÷(4%÷12)

Monthly withdrawal, P = $2,367

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