🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Finance
1
answer
0
watching
92
views

-You deposit 5% of your $40,000 annual income in a 401(K) plan at the end of each year. Your employer matches 2% of your earnings. You expect the plan to earn 10% and you are in the 25% tax bracket.

A. What is your annual investment?

B. What is your one year returnon the plan?

-Assuming the employee actual annual investment is $3,000/year (including the employer’s contribution) , his tax rate stays at 25%, and the 401(k) yield remains at 10% over a 20-year career, when the employee retires the 401(k) will be worth:

-Now assume you just retired, and have accumulated $170,000 in the 401K. If you continue to earn 10% and want to withdraw $20,000 at the beginning of each year, how many years can you do this?

Watch
1
answer
0
watching
92
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Casey Durgan
Casey DurganLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Alex is 25 years old and he is about to start his first full-time job. He is currently single and he is willing to take the appropriate risk he needs to prepare for retirement. His starting annual salary is $85,000 and he has no retirement savings yet. His employer will match 100% of his contributions up to the first 4% of his salary to the company’s 401(k) account.

Part A – Annual Savings Use this link to determine his retirement saving needs: http://cgi.money.cnn.com/tools/saveyoung/index.html

1. What amount should Alex should be saving each year? (Use this amount in the “Total” box.) [2 points]

2. How much of the total annual savings should he be saving in his 401(K), a Traditional IRA, and a ROTH IRA? Put these amounts in the table in the “Amount” column. [9 points]

3. Why did you pick each amount? Put your explanation in the table next to the amount. Make sure you use concepts from your text, class materials, etc. to justify your position. [9 points]

Part B – Investment Vehicle Choices Use FINRA’s Fund Analyzer (http://apps.finra.org/fundanalyzer/1/fa.aspx) to look up and compare the funds Alex has to choose from within his employer’s 401(k) plan. (Keep the defaults and focus on the fees, profits/losses). Alex’s employer offers the following 401(k) Investment Vehicle Options a. Davis New York Venture Fund Class Y [DNVYX] b. Aberdeen Select International Equity Fund Class [JIEIX] c. Janus Asia Equity Fund Class A [JAQAX] Alex has the following Traditional or Roth IRA Options d. Target Date Fund e. Apple Stock f. 10 Year Treasury Note g.

Your own choice (you must explain why) 4. Pick the most appropriate choice from the lists above for the investment vehicles.

Then put your choices (a, b, c, d, e, f, and g) in the table. [4 points] 5. Why did you pick each fund? Put your explanation in the table next to the Investment Vehicle Choice. Make sure you use concepts from your text, class materials, etc. to justify your position. [6 points]

Please note that when you finish this table, all the boxes may or may not contain data. It is OK to have N/A or zeros in some of the boxes as long as you provide your rationale. Amount (#2) Why did you choose this amount? (#3) Investment Vehicle Choice (#4) Why did you choose this fund? (#5) 401(k) Employee Contribution: $ Employer Contribution: $ If you decide to invest all or part of the total amount outside the 401(k), choose one of the following Individual Retirement Accounts:

NON-EXCEL help on Growing Annuity Problem

In this problem, we will assume all cash flows occur at theBEGINNING OF THE PERIOD (Annuity Due). Therefore,you need to set the calculator to BEGIN. You maywant to review the Lecture Video on Growing Annuity for help inworking the exam.

Problem:
Assume you are 32 years old and plan to retire in 35 years at age67. You are currently earning $75,000/year and expect averageannual salary increases of 4.0%/year over the next 35 years. Youhave $0 saved for retirement.

You are trying to determine how much money to save (invest) eachyear in your 401(k) Plan to fund your retirement in order to payyourself 70% of your final salary each year (that increases withinflation). [Remember this is an Annuity Due, so your first annualinvestment is made in Year 0….and your final payment is in Year34.] You plan to maintain an investment as a percent of yoursalary, which simply means your payment into the 401(k) will alsoincrease by 4.0% per year as your salary increases 4.0% eachyear.

You believe that you can earn 8.0%/year over the next 35 yearswhile saving for retirement.

Once you retire, you have a life expectancy of 25 years. Youplan to be more conservative in your investments and expect to earnonly 5.0%/year on your investments over the 25 years while inretirement. You also want to maintain your purchasing power byincreasing your “annual retirement pay” by the expected inflationrate of 3.0% each year. [Remember, your first withdrawal will bemade in Year 0 of retirement (i.e., Year 35 on the timeline.]Assume that after you withdraw the 25th payment, you will have $0left in the account.

Instructions:
- SET CALCULATOR TO “BEGIN”!
- Set up and show your Timeline with payments. You MUST “show yourwork” in order to get partial credit.
- For this Exam it would be better to handwork the problem and saveas a pdf before submitting.
- BOX in all your ANSWERS!
- You may round all answers to the dollar throughout theproblem.
- Carry your adjusted interest rates out to 6 decimal places toreduce rounding errors.

Questions: [NOTE: there are obviously many steps to get to theseanswers…scoring is below.]
1. What is your final year’s salary?
What is 70% of your salary? [Round to the dollar.]

2. How much will you need in your 401(k) at retirement in orderto “pay yourself” 70% of your final year’s salary,
AND have that payment to yourself increase at 3.0% each year tomaintain purchasing power?

3. How much do you need to contribute each year (i.e., save,invest) over the next 35 years in order to fund your retirement.Remember, payment into the 401(k) is increasing by 4.0% eachyear.

Scoring (Do not use Excel):

1. Readability of your Exam. Is it organized, do you show allwork, are your answers BOXED in, etc. (10 points)
2. Correctly work problem as an Annuity Due (10 points)
3. Calculate the FV of salary and 70% of salary as first withdrawalfrom your 401(k) in retirement. (15 points)
4. Do you show a Timeline and is it labeled properly? (15points)
5. Calculate adjusted interest rate for Retirement Annuity section.(10 points)
6. Calculate the PVA for the Retirement Annuity. (10 points)
7. Calculate the adjusted interest rate for the saving/investingsection of problem. (10 points)
8. Calculate the adjusted FVA correctly that is used to determineamount to save each year. (10 points)
9. Calculate the amount you need to save each year; where paymentincreases as salary increases. (10 points)

What is the balance in your 401k account upon retirement given the following information?

Employee contribution = $250 per month

Savings period until retirement = 25 years

Annual Rate of Return = 5%

Employer matches 50% of employee contribution (no limit)

Compounded quarterly

A.

$214,772

B.

$223,316

C.

$147,804

D.

$221,706

5 points

QUESTION 7

An employee earns $78,000 per year for 2 years. Each year she makes a contribution to her 401K in the amount of 5.50% of annual salary. There is no company match. Her return on investment is 4% annually. Assume contributions are made on January 1st of each year and her tax rate is 32%. What is the total value of tax savings (including interest) from 401k contributions at the end of 2 years?

A.

$1,485

B.

$2,913

C.

$2,855

D.

$2,746

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in