Mike currently 35, has $15,000 saved for retirement. He is currently saving $450
ID: 2745335 • Letter: M
Question
Mike currently 35, has $15,000 saved for retirement. He is currently saving $450 at the beginning of every month and his employer matches his total savings contribution on a monthly basis. Mike projects that he could earn 7% on his savings. He plans to retire at 65 and expects to live until age 90. His current expenditure on basic needs at the beginning of every month is $2200 every month which is expected to increase with inflation of 4%. How much would be shortfall or excess in his retirement account? $337,138 shortfall $334,475 excess $337,138 excess $334,475 shortfall
Explanation / Answer
First calculate the value of expenses after retirement at age 65
he plans to live for 25 years or 300 months, so N = 300
Expenses (PMT) = 2200
FV = 0
I = 4/12% = 0.33%
The present value when he is 65 can be determined using the inputs above in an excel formulae or financial calculator
PV = 418,358
Now we calculate the amount he accumulates
Payments = 450*2 = 900
N = 30 years or 360 months
r = 7/12% = 0.583%
FV = 418,358
Now we determine the future value of the deposits and amount in account
FV of deposits = 1,226,125
excess amount = 1,226,125 - 418,358 = 807,766 (this is at age 65)