Question
In: Finance
You have been a diligent saver and at age 30 you have managed to save $50,000...
- You have been a diligent saver and at age 30 you have managed to save $50,000 for your retirement at age 65. You estimate that your invested savings will make on the average $3000 per year. The fund management fees are 1.5% of your investment balance at the end of the year after the investment returns have been added. You pay fees on a percentage of the total investment balance — not on annual investment gains of your hard earned retirement savings. What will be the difference in the retirement savings of $50,000 at age 65 if the fund management fees were 0.5%?
Solutions
Expert Solution
If fund management fees are 1.5% then total fees paid till age 65 will be $54,600 and net retirement savings will be $155,000 - $54,600 = $100,400.
| Years | Op. balance | Return | Clo. Balance | Mgt. Fees |
| 31 | $50,000 | $3,000 | $53,000 | $795.0 |
| 32 | $53,000 | $3,000 | $56,000 | $840.0 |
| 33 | $56,000 | $3,000 | $59,000 | $885.0 |
| 34 | $59,000 | $3,000 | $62,000 | $930.0 |
| 35 | $62,000 | $3,000 | $65,000 | $975.0 |
| 36 | $65,000 | $3,000 | $68,000 | $1,020.0 |
| 37 | $68,000 | $3,000 | $71,000 | $1,065.0 |
| 38 | $71,000 | $3,000 | $74,000 | $1,110.0 |
| 39 | $74,000 | $3,000 | $77,000 | $1,155.0 |
| 40 | $77,000 | $3,000 | $80,000 | $1,200.0 |
| 41 | $80,000 | $3,000 | $83,000 | $1,245.0 |
| 42 | $83,000 | $3,000 | $86,000 | $1,290.0 |
| 43 | $86,000 | $3,000 | $89,000 | $1,335.0 |
| 44 | $89,000 | $3,000 | $92,000 | $1,380.0 |
| 45 | $92,000 | $3,000 | $95,000 | $1,425.0 |
| 46 | $95,000 | $3,000 | $98,000 | $1,470.0 |
| 47 | $98,000 | $3,000 | $101,000 | $1,515.0 |
| 48 | $101,000 | $3,000 | $104,000 | $1,560.0 |
| 49 | $104,000 | $3,000 | $107,000 | $1,605.0 |
| 50 | $107,000 | $3,000 | $110,000 | $1,650.0 |
| 51 | $110,000 | $3,000 | $113,000 | $1,695.0 |
| 52 | $113,000 | $3,000 | $116,000 | $1,740.0 |
| 53 | $116,000 | $3,000 | $119,000 | $1,785.0 |
| 54 | $119,000 | $3,000 | $122,000 | $1,830.0 |
| 55 | $122,000 | $3,000 | $125,000 | $1,875.0 |
| 56 | $125,000 | $3,000 | $128,000 | $1,920.0 |
| 57 | $128,000 | $3,000 | $131,000 | $1,965.0 |
| 58 | $131,000 | $3,000 | $134,000 | $2,010.0 |
| 59 | $134,000 | $3,000 | $137,000 | $2,055.0 |
| 60 | $137,000 | $3,000 | $140,000 | $2,100.0 |
| 61 | $140,000 | $3,000 | $143,000 | $2,145.0 |
| 62 | $143,000 | $3,000 | $146,000 | $2,190.0 |
| 63 | $146,000 | $3,000 | $149,000 | $2,235.0 |
| 64 | $149,000 | $3,000 | $152,000 | $2,280.0 |
| 65 | $152,000 | $3,000 | $155,000 | $2,325.0 |
| Total | $54,600.0 |
Calculation
If fund management fees are 0.5% then total fees paid till age 65 will be $18,200 and retirement savings will be higher by $54,600 - $18,200 = $36,400. so, net retirement savings at the age 65 would have been $155,000 - $18,200 = $136,800. net retirement savings higher by $136,800 - $100,400 = $36,400.
| Years | Op. balance | Return | Clo. Balance | Mgt. Fees |
| 31 | $50,000 | $3,000 | $53,000 | $265.0 |
| 32 | $53,000 | $3,000 | $56,000 | $280.0 |
| 33 | $56,000 | $3,000 | $59,000 | $295.0 |
| 34 | $59,000 | $3,000 | $62,000 | $310.0 |
| 35 | $62,000 | $3,000 | $65,000 | $325.0 |
| 36 | $65,000 | $3,000 | $68,000 | $340.0 |
| 37 | $68,000 | $3,000 | $71,000 | $355.0 |
| 38 | $71,000 | $3,000 | $74,000 | $370.0 |
| 39 | $74,000 | $3,000 | $77,000 | $385.0 |
| 40 | $77,000 | $3,000 | $80,000 | $400.0 |
| 41 | $80,000 | $3,000 | $83,000 | $415.0 |
| 42 | $83,000 | $3,000 | $86,000 | $430.0 |
| 43 | $86,000 | $3,000 | $89,000 | $445.0 |
| 44 | $89,000 | $3,000 | $92,000 | $460.0 |
| 45 | $92,000 | $3,000 | $95,000 | $475.0 |
| 46 | $95,000 | $3,000 | $98,000 | $490.0 |
| 47 | $98,000 | $3,000 | $101,000 | $505.0 |
| 48 | $101,000 | $3,000 | $104,000 | $520.0 |
| 49 | $104,000 | $3,000 | $107,000 | $535.0 |
| 50 | $107,000 | $3,000 | $110,000 | $550.0 |
| 51 | $110,000 | $3,000 | $113,000 | $565.0 |
| 52 | $113,000 | $3,000 | $116,000 | $580.0 |
| 53 | $116,000 | $3,000 | $119,000 | $595.0 |
| 54 | $119,000 | $3,000 | $122,000 | $610.0 |
| 55 | $122,000 | $3,000 | $125,000 | $625.0 |
| 56 | $125,000 | $3,000 | $128,000 | $640.0 |
| 57 | $128,000 | $3,000 | $131,000 | $655.0 |
| 58 | $131,000 | $3,000 | $134,000 | $670.0 |
| 59 | $134,000 | $3,000 | $137,000 | $685.0 |
| 60 | $137,000 | $3,000 | $140,000 | $700.0 |
| 61 | $140,000 | $3,000 | $143,000 | $715.0 |
| 62 | $143,000 | $3,000 | $146,000 | $730.0 |
| 63 | $146,000 | $3,000 | $149,000 | $745.0 |
| 64 | $149,000 | $3,000 | $152,000 | $760.0 |
| 65 | $152,000 | $3,000 | $155,000 | $775.0 |
| Total | $18,200.0 |
Calculation
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