You have a choice upon graduation. Invest $5,000 per year into your retirement f
ID: 2772269 • Letter: Y
Question
You have a choice upon graduation. Invest $5,000 per year into your retirement from age 22 – 30, or wait until your 31 and invest every year through age 65.
Pick a stock fund’s 10 year return as an investment return like we did in the previous week (you don’t have to use the same fund) and calculate your investment balance at the end of age 65.
https://personal.vanguard.com/us/funds/vanguard/all?reset=true&sort=name&sortorder=asc
Share your age 65 balances with your group. What did you find?
Now, take that money and spend it down to 0, assuming you’ll live 30 more years to age 95. How much money can you spend per month (hint: monthly compounding). Assume you put your money into a balanced fund at vanguard.com (click the box for balanced). Share with your group your results
What are the implications for your becoming financially independent?
Explanation / Answer
I have chosen Growth Index Admiral Shares fund for my investment purpose. It’s 10 year return is 8.08%
No. of payments = 65-31+1 =35
Pmt = 5000
Rate = 8.08%
Value of money at the time of retirement FV = pmt x FVIFA(n,R%)
=5000x FVIFA(34,8.08%)
= 5000x 175.415
= 877,075
Now after the retirement we need to put this money into balance fund. I have chosen Wellesley Income . 10 year return on this fund is 6.72%
Monthly return =6.72%/12 =0.56%
no. of withdrawal = 30x12 =360
Amount available pv =877,075
Monthly withdrawal amount = pv/pvifa ( 0.56%,360)
=877,075/154.6539
=5671.21
I can withdraw $5,671.21 per month after retirement from my investment.
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