Question

You start a new job at age 39 with a beginning salary of $72,000 per year paid monthly. You expect a 2% increase annually in your salary. You invest 10% of your salary and your employer gives you an additional 3% of your salary each year paid into your retirement account monthly. At the end of year 6 you get a $10,000 raise instead of the 2% increase. At the end of year 10 you get another $10,000 raise instead of the 2% increase. The investment firm that you have your retirement account with is averaging 10% gains on your money over your lifetime. You expect to live until you are 95 years old and would like to retire by the time you are 65. Questions: How long do you have to work to save $1,000,000? If you retire when you have $1,000,000 How long will it last if you need $4000 per month to live on? At what age will you be able to retire to receive $4000 per month to live on until you die at age 95? What does the cash flow diagram look like for each situation listed above?

Answer 1

you have to work for 12 years upto age 51 inorder to save $1,000,000

Number of Years $1,000,000 lasts if you need $48000 per year = 1000000/48000 = 20.8 Years

Savings required from Age 58 to 95 =(95-58)*4800 = $17,76,000

therefore able to retire at the age of 58 since earnings from age 39 to 58 covers more than the $17,76,000

Calculation of Earnings Year wise for reference

Age	Year end	Annual Salary	Investment@10%	Retirement Account @ 3%
40	1	72,000	7,200	2,160
41	2	73,440	7,344	2,203
42	3	74,909	7,491	2,247
43	4	76,407	7,641	2,292
44	5	77,935	7,794	2,338
45	6	87,935	8,794	2,638
46	7	89,694	8,969	2,691
47	8	91,488	9,149	2,745
48	9	93,317	9,332	2,800
49	10	1,03,317	10,332	3,100
50	11	1,05,384	10,538	3,162
51	12	1,07,491	10,749	3,225
52	13	1,09,641	10,964	3,289
53	14	1,11,834	11,183	3,355
54	15	1,14,071	11,407	3,422
55	16	1,16,352	11,635	3,491
56	17	1,18,679	11,868	3,560
57	18	1,21,053	12,105	3,632
58	19	1,23,474	12,347	3,704
59	20	1,25,943	12,594	3,778
60	21	1,28,462	12,846	3,854
61	22	1,31,032	13,103	3,931
62	23	1,33,652	13,365	4,010
63	24	1,36,325	13,633	4,090
64	25	1,39,052	13,905	4,172
65	26	1,41,833	14,183	4,255