Question

Perry has graduated from college and is about to start his career as a financial analyst. Perry will be earning $56,000 per year. He has the choice to contribute to his firm’s 401k plan whereby he can contribute 5% of his monthly salary each month to the account and his employer will match his contribution ($1 for $1). If Perry anticipates working for the firm until retirement (50 years) and earning 6.25% on his retirement savings, how much will Perry have in his account at the time of retirement (assuming Perry’s pay remains constant over this time period).

Answer 1

- Perry's Income next year = $56,000

She will contribute 5% of her monthly salary to 401k plan and her employer will contribute the same amount.

Monthly contribution = $56,000*5%*1 month/12 month = $233.3333

As, employwr will contribute thw same amount, Total Contribution = $233.3333*2 = $466.6667

Calculating the Future Value at the end of year 50 from now of periodic contribution:-

Where, C= Periodic Contribution = $466.6667

r = Periodic Interest rate = 6.25%/12 = 0.5208333%

n= no of periods = 50years*12 = 600

Future Value = $1,933,214.72

So, Perry have in his account at the time of retirement is $1933,214.72

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