Today, you celebrated your 29 th birthday. The new firm you work for provides yo
ID: 2650468 • Letter: T
Question
Today, you celebrated your 29th birthday. The new firm you work for provides you a 401-k plan, and you decide to deposit $400 every month for first 12 years. After that, for the next 12 years, you increase your contribution to $600/month. After that, for the next 12 years, you increase your contributions to $1,000/month. All your deposits are made end of month. The firm matches it at 100% and deposits the money to the same account once a year, deposits are made end of year. The account is expected to provide interest at 7.2% per year compounded monthly.
You had following additional transactions related to your account.
A hardship withdrawal of $10,000 on your 40th birthday, but returned it on your 43rd birthday
Another hardship withdrawal of $20,000 on your 58th birthday. This was not returned
a) On your 65th birthday, you stop contributing to 401-k. Determine the total account balance (including company match) in your account on your 65th birthday.
b) After you are 65, you start withdrawing $9,000/month. The 401-k account will continue to pay interest at the same rate even during your retirement years. Assume that you will withdraw funds until your 90th birthday. Determine the balance in the account on your 90th birthday.
Explanation / Answer
Answer a.
Balance in account = $ 1,946,160.55
Answer b.
Balance in Account = $ 4,037,235.61
Workings:
Age Beginning Interest 7.2% New Deposit Withdrawl Ending 29 0 0 9600 9600.00 30 9600.00 691.20 9600 19891.20 31 19891.20 1432.17 9600 30923.37 32 30923.37 2226.48 9600 42749.85 33 42749.85 3077.99 9600 55427.84 34 55427.84 3990.80 9600 69018.64 35 69018.64 4969.34 9600 83587.98 36 83587.98 6018.33 9600 99206.32 37 99206.32 7142.85 9600 115949.17 38 115949.17 8348.34 9600 133897.51 39 133897.51 9640.62 9600 153138.14 40 153138.14 11025.95 9600 10000.00 163764.08 41 163764.08 11791.01 14400.00 189955.10 42 189955.10 13676.77 14400.00 218031.86 43 218031.86 15698.29 24400.00 258130.16 44 258130.16 18585.37 14400.00 291115.53 45 291115.53 20960.32 14400.00 326475.85 46 326475.85 23506.26 14400.00 364382.11 47 364382.11 26235.51 14400.00 405017.62 48 405017.62 29161.27 14400.00 448578.89 49 448578.89 32297.68 14400.00 495276.57 50 495276.57 35659.91 14400.00 545336.48 51 545336.48 39264.23 14400.00 599000.71 52 599000.71 43128.05 14400.00 656528.76 53 656528.76 47270.07 24000.00 727798.83 54 727798.83 52401.52 24000.00 804200.34 55 804200.34 57902.42 24000.00 886102.77 56 886102.77 63799.40 24000.00 973902.17 57 973902.17 70120.96 24000.00 1068023.12 58 1068023.12 76897.66 24000.00 20000.00 1148920.79 59 1148920.79 82722.30 24000.00 1255643.08 60 1255643.08 90406.30 24000.00 1370049.39 61 1370049.39 98643.56 24000.00 1492692.94 62 1492692.94 107473.89 24000.00 1624166.83 63 1624166.83 116940.01 24000.00 1765106.85 64 1765106.85 127087.69 24000.00 1916194.54 65 1916194.54 137966.01 108000.00 1946160.55 66 1946160.55 140123.56 108000.00 1978284.11 67 1978284.11 142436.46 108000.00 2012720.56 68 2012720.56 144915.88 108000.00 2049636.44 69 2049636.44 147573.82 108000.00 2089210.27 70 2089210.27 150423.14 108000.00 2131633.41 71 2131633.41 153477.61 108000.00 2177111.01 72 2177111.01 156751.99 108000.00 2225863.00 73 2225863.00 160262.14 108000.00 2278125.14 74 2278125.14 164025.01 108000.00 2334150.15 75 2334150.15 168058.81 108000.00 2394208.96 76 2394208.96 172383.05 108000.00 2458592.01 77 2458592.01 177018.62 108000.00 2527610.63 78 2527610.63 181987.97 108000.00 2601598.59 79 2601598.59 187315.10 108000.00 2680913.69 80 2680913.69 193025.79 108000.00 2765939.48 81 2765939.48 199147.64 108000.00 2857087.12 82 2857087.12 205710.27 108000.00 2954797.39 83 2954797.39 212745.41 108000.00 3059542.81 84 3059542.81 220287.08 108000.00 3171829.89 85 3171829.89 228371.75 108000.00 3292201.64 86 3292201.64 237038.52 108000.00 3421240.16 87 3421240.16 246329.29 108000.00 3559569.45 88 3559569.45 256289.00 108000.00 3707858.45 89 3707858.45 266965.81 108000.00 3866824.26 90 3866824.26 278411.35 108000.00 4037235.61