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John is saving for retirement by contributing $20,000 a year to his 401(k) assuming that John...

John is saving for retirement by contributing $20,000 a year to his 401(k) assuming that John is currently 40 and is looking to retire at the age of 60 (Assume 7% returns). John wants to live of his investment earnings going forward Compute how much income he can expect a month with the investment income of 5% Annually.

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Expert Solution

Currently John is 40 and contributes 20,000 a year till the age of 60. Total retirement amount schedule is as below:

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Future Value Calculator

The future value calculator can be used to calculate the future value (FV) of an investment with given inputs of compounding periods (N), interest/yield rate (I/Y), starting amount, and periodic deposit/annuity payment per period (PMT).

Number of Periods (N)
Starting Amount
Interest Rate (I/Y)
Periodic Deposit (PMT) /period
PMT made at the beginning   end
of each compound period
    

Results

Future Value: $877,303.54

PV (Present Value) $226,711.90
N (Number of Periods) 20.000
I/Y (Interest Rate) 7.000
PMT (Periodic Deposit) $20,000.00
Starting Amount $0.00
Total Periodic Deposits $400,000.00
Total Interest $477,303.54

Balance Accumulation Graph

PrincipalInterestBalance05101520$0$250.0K$500.0K$750.0K$1.0M

Breakdown

46%54%Periodic DepositsInterest

Schedule

start principal start balance interest end balance
1 $20,000.00 $20,000.00 $1,400.00 $21,400.00
2 $40,000.00 $41,400.00 $2,898.00 $44,298.00
3 $60,000.00 $64,298.00 $4,500.86 $68,798.86
4 $80,000.00 $88,798.86 $6,215.92 $95,014.78
5 $100,000.00 $115,014.78 $8,051.03 $123,065.81
6 $120,000.00 $143,065.81 $10,014.61 $153,080.42
7 $140,000.00 $173,080.42 $12,115.63 $185,196.05
8 $160,000.00 $205,196.05 $14,363.72 $219,559.77
9 $180,000.00 $239,559.77 $16,769.18 $256,328.96
10 $200,000.00 $276,328.96 $19,343.03 $295,671.99
11 $220,000.00 $315,671.99 $22,097.04 $337,769.03
12 $240,000.00 $357,769.03 $25,043.83 $382,812.86
13 $260,000.00 $402,812.86 $28,196.90 $431,009.76
14 $280,000.00 $451,009.76 $31,570.68 $482,580.44
15 $300,000.00 $502,580.44 $35,180.63 $537,761.07
16 $320,000.00 $557,761.07 $39,043.27 $596,804.35
17 $340,000.00 $616,804.35 $43,176.30 $659,980.65
18 $360,000.00 $679,980.65 $47,598.65 $727,579.30
19 $380,000.00 $747,579.30 $52,330.55 $799,909.85
20 $400,000.00 $819,909.85 $57,393.69 $877,303.54

Total investment at the age of 60 is $877,303.54.

5% of investment income earned annually.Yearly investment income=$877,303.54*0.05=$43,865.18

Monthly income =($43,865.18)/12= $3655


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