You start a new job at age 39 with a beginning salary of $72,000 per year paid m
ID: 2657803 • Letter: Y
Question
You start a new job at age 39 with a beginning salary of $72,000 per year paid monthly. You expect a 2% increase annually in your salary. You invest 10% of your salary and your employer gives you an additional 3% of your salary each year paid into your retirement account monthly. At the end of year 6 you get a $10,000 raise instead of the 2% increase. At the end of year 10 you get another $10,000 raise instead of the 2% increase. The investment firm that you have your retirement account with is averaging 10% gains on your money over your lifetime. You expect to live until you are 95 years old and would like to retire by the time you are 65. Questions: How long do you have to work to save $1,000,000? If you retire when you have $1,000,000 How long will it last if you need $4000 per month to live on? At what age will you be able to retire to receive $4000 per month to live on until you die at age 95? What does the cash flow diagram look like for each situation listed above?
Explanation / Answer
you have to work for 12 years upto age 51 inorder to save $1,000,000
Number of Years $1,000,000 lasts if you need $48000 per year = 1000000/48000 = 20.8 Years
Savings required from Age 58 to 95 =(95-58)*4800 = $17,76,000
therefore able to retire at the age of 58 since earnings from age 39 to 58 covers more than the $17,76,000
Calculation of Earnings Year wise for reference
Age Year end Annual Salary Investment@10% Retirement Account @ 3% 40 1 72,000 7,200 2,160 41 2 73,440 7,344 2,203 42 3 74,909 7,491 2,247 43 4 76,407 7,641 2,292 44 5 77,935 7,794 2,338 45 6 87,935 8,794 2,638 46 7 89,694 8,969 2,691 47 8 91,488 9,149 2,745 48 9 93,317 9,332 2,800 49 10 1,03,317 10,332 3,100 50 11 1,05,384 10,538 3,162 51 12 1,07,491 10,749 3,225 52 13 1,09,641 10,964 3,289 53 14 1,11,834 11,183 3,355 54 15 1,14,071 11,407 3,422 55 16 1,16,352 11,635 3,491 56 17 1,18,679 11,868 3,560 57 18 1,21,053 12,105 3,632 58 19 1,23,474 12,347 3,704 59 20 1,25,943 12,594 3,778 60 21 1,28,462 12,846 3,854 61 22 1,31,032 13,103 3,931 62 23 1,33,652 13,365 4,010 63 24 1,36,325 13,633 4,090 64 25 1,39,052 13,905 4,172 65 26 1,41,833 14,183 4,255Related Questions
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