Consider a person who begins contributing to a retirement plan at age 25 and con

Question

Consider a person who begins contributing to a retirement plan at age 25 and contributes for 40 years until retirement at age 65. For the first ten years, she contributes $2,400 per year. She increases the contribution rate to $4,400 per year in years 11 through 20. This is followed by increases to $9,400 per year in years 21 through 30 and to $14,400 per year for the last ten years. This money earns a 10 percent return

First compute the value of the retirement plan when she turns age 65.

Compute the annual payment she would receive over the next 40 years if the wealth was converted to an annuity payment at 9 percent

Compute the annual payment she would receive over the next 40 years if the wealth was converted to an annuity payment at 9 percent

Explanation / Answer

2400 for 10 years @10% =2400*((1.1^10)-1)/0.1)) 38249.82 4400 for 10 years @10% =4400*((1.1^10)-1)/0.1)) 70124.67 9400 for 10 years @10% =9400*((1.1^10)-1)/0.1)) 149811.8 14,400 for 10 years @10% =14400*((1.1^10)-1)/0.1)) 229498.9 Total Future Value of Fund 487685.2 Total Retirement Fund P*((1.09^40)-1)/0.09 937120.6 ((1.09^40)-1)/0.09 337.8824 P=487685.2/337.88 1443.368 Annuity payment for 40 years

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