Milo has just become eligible for his employer-sponsored matching 401 K retireme
ID: 2497194 • Letter: M
Question
Milo has just become eligible for his employer-sponsored matching 401 K retirement plan. Milo is 35 and plans to retire at 65. Milo calculates that he can contribute $4,800 per year to his plan. Milo's employer will match this amount. If Vidar can earn a 5 percent return on his investment, how much will he have at retirement?
How much would Milo have at retirement if he had started to contribute to this plan at age 50?
How much would Milo have if he could earn a 10 percent return on his investment beginning at age 35?
According to 2015 tax rules, 401K plans can contribute $18,000 per year. How much could Milo accumulate in his 401 K if he took advantange of this option and invested $9,000 per year, assuming his employer would match the contribution for the same 30 year period at 8%.
If the 401K plan has a 2% program maintenance fee which decreased annual returns by 2% each year, how much would the fee have cost him in total?
Explanation / Answer
a Amount at the age of retirement if he invests $ 4800 per year Amount contributed by Milo = 4800 Employer contribution 4800 Total contribution = 9600 Number of years = 30 Rate of return = 5% Total amount at retirement age = Total contribution * Cumulative future factor at 5 % for 30 years Total amount at retirement age = Total amount at retirement age Amounts in Dollars Years of contribution 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Contribution of each year 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 Cumulative future factor at each year end 1.05 1.1025 1.15763 1.21551 1.27628 1.3401 1.4071 1.47746 1.55133 1.628895 1.710339 1.79586 1.88565 1.97993 2.07893 2.18287 2.29202 2.40662 2.52695 2.6533 2.78596 2.92526 3.07152 3.2251 3.38635 3.55567 3.73346 3.92013 4.11614 4.3219424 Value at retirement age ( Contribution * Cumulative future factor ) 10290 10804.5 11344.7 11912 12507.6 13132.9 13789.6 14479.1 15203 15963.17 16761.33 17599.4 18479.4 19403.3 20373.5 21392.2 22461.8 23584.9 24764.1 26002.3 27302.4 28667.6 30100.9 31606 33186.3 34845.6 36587.9 38417.3 40338.1 42355.035 Total = 683655.74 Total amount received at the age of 65 is 683655.74 Note If the contribution is made on year 1, then I will be accumulated for 30 years. And if contribution is made on 2nd year it will be accumulated for 29 years. Calculations have been made based on the above note. b Amount at the age of retirement if he started contribution at the age of 50 years. Total amount at retirement age Years of contribution 10 9 8 7 6 5 4 3 2 1 Contribution of each year 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 Cumulative future factor at each year end 1.05 1.1025 1.15763 1.21551 1.27628 1.3401 1.4071 1.47746 1.55133 1.628895 Value at retirement age ( Contribution * Cumulative future factor ) 10290 10804.5 11344.7 11912 12507.6 13132.9 13789.6 14479.1 15203 15963.17 Total = 129426.51 Total amount received at the age of 65 is 129426.51 c Amount at the age of retirement if his rate of return is 10% per annum Total amount at retirement age Years of contribution 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Contribution of each year 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800 Cumulative future factor at each year end 1.1 1.21 1.331 1.4641 1.61051 1.77156 1.94872 2.14359 2.35795 2.593742 2.853117 3.13843 3.45227 3.7975 4.17725 4.59497 5.05447 5.55992 6.11591 6.7275 7.40025 8.14027 8.9543 9.84973 10.8347 11.9182 13.11 14.421 15.8631 17.449402 Value at retirement age ( Contribution * Cumulative future factor ) 10780 11858 13043.8 14348.2 15783 17361.3 19097.4 21007.2 23107.9 25418.68 27960.54 30756.6 33832.3 37215.5 40937 45030.7 49533.8 54487.2 59935.9 65929.5 72522.4 79774.7 87752.2 96527.4 106180 116798 128478 141326 155458 171004.14 Total = 1773245.56 Total amount received at the age of 65 is 1773245.56 d Amount at the age of retirement if he total contribution is 18000 and his rate of return is 8% per annum Total amount at retirement age Years of contribution 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Contribution of each year 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 Cumulative future factor at each year end 1.08 1.1664 1.25971 1.36049 1.46933 1.58687 1.71382 1.85093 1.999 2.158925 2.331639 2.51817 2.71962 2.93719 3.17217 3.42594 3.70002 3.99602 4.3157 4.66096 5.03383 5.43654 5.87146 6.34118 6.84848 7.39635 7.98806 8.62711 9.31727 10.062657 Value at retirement age ( Contribution * Cumulative future factor ) 19440 20995.2 22674.8 24488.8 26447.9 28563.7 30848.8 33316.7 35982.1 38860.65 41969.5 45327.1 48953.2 52869.5 57099 61667 66600.3 71928.4 77682.6 83897.2 90609 97857.7 105686 114141 123273 133134 143785 155288 167711 181127.82 Total = 2202225.6 Total amount received at the age of 65 is 2202225.6 e Amount at the age of retirement if he total contribution is 18000 and his rate of return is 8% per annum and annual return decreased by 2% Total amount at retirement age Years of contribution 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Contribution of each year 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 Cumulative future factor at each year end 1.06 1.1236 1.19102 1.26248 1.33823 1.41852 1.50363 1.59385 1.68948 1.790848 1.898299 2.0122 2.13293 2.2609 2.39656 2.54035 2.69277 2.85434 3.0256 3.20714 3.39956 3.60354 3.81975 4.04893 4.29187 4.54938 4.82235 5.11169 5.41839 5.7434912 Value at retirement age ( Contribution * Cumulative future factor ) 19080 20224.8 21438.3 22724.6 24088.1 25533.3 27065.3 28689.3 30410.6 32235.26 34169.37 36219.5 38392.7 40696.3 43138 45726.3 48469.9 51378.1 54460.8 57728.4 61192.1 64863.7 68755.5 72880.8 77253.7 81888.9 86802.2 92010.4 97531 103382.84 Total = 1508430.19