Question

Millhouse graduated 5 years ago with a degree in business administration and is currently employed as a middle level manager for the same firecracker company his dad already worked for. His current annual salary of $60,000 has increased at an average rate of 5% per year and is projected to increase at that rate for the future. The firm has had a voluntary retirement savings program in place, whereby, employees can contribute up to 11% of their gross annual salary (up to a maximum of $11,000 per year) and the company will match every dollar that the employee contributes. Unfortunately, Millhouse did not listen to his finance instructor (which is understandable, because you can’t really trust those Germans) and has not yet taken advantage of the retirement savings program. He opted instead to buy a new car, rent an expensive apartment and go out to Moe’s every night. However, with wedding plans on the horizon, Millhouse has finally come to the realization (with the help of his fiancée Lisa) that he had better start putting away some money. Millhouse figures that the two largest expenses down the road would be those related to the wedding and down payment on a house. He estimates that the wedding, which will take place in twelve months, should cost about $10,000. Furthermore, he plans to move into a $200,000 house in 5 years and would need 20% for a down payment. Millhouse knows that an automatic payroll deduction is probably the best way to go since he is not a very disciplined investor. )

If Millhouse starts his retirement savings plan in January of next year (when he turns 28) by contributing the maximum allowable amount into the firm’s retirement savings program, how much money will he have accumulated for retirement, assuming he retires at age 65 (37 years later)? Assume the rate of return on the account to be 8% compounded monthly.

Answer 1

Answer:-

year	salary	amount to be invested in retirementplan(salary*11%)	11% of salary or $11000 whichever is lower	future value@8%	future value
1	63000.00	6930.00	6930.00	17.24563	119512.2
2	66150.00	7276.50	7276.50	15.96817	116192.4
3	69457.50	7640.33	7640.33	14.78534	112964.8
4	72930.38	8022.34	8022.34	13.69013	109826.9
5	76576.89	8423.46	8423.46	12.67605	106776.2
6	80405.74	8844.63	8844.63	11.73708	103810.2
7	84426.03	9286.86	9286.86	10.86767	100926.6
8	88647.33	9751.21	9751.21	10.06266	98123.04
9	93079.69	10238.77	10238.77	9.317275	95397.4
10	97733.68	10750.70	10750.70	8.627106	92747.47
11	102620.36	11288.24	11000	7.988061	87868.68
12	107751.38	11852.65	11000	7.396353	81359.89
13	113138.95	12445.28	11000	6.848475	75333.23
14	118795.90	13067.55	11000	6.341181	69752.99
15	124735.69	13067.55	11000	6.341181	69752.99
16	130972.48	14406.97	11000	5.43654	59801.94
17	137521.10	15127.32	11000	5.033834	55372.17
18	144397.15	15883.69	11000	4.660957	51270.53
19	151617.01	16677.87	11000	4.315701	47472.71
20	159197.86	17511.76	11000	3.996019	43956.21
21	167157.76	18387.35	11000	3.700018	40700.2
22	175515.64	19306.72	11000	3.425943	37685.37
23	184291.43	20272.06	11000	3.172169	34893.86
24	193506.00	21285.66	11000	2.937194	32309.13
25	203181.30	22349.94	11000	2.719624	29915.86
26	213340.36	23467.44	11000	2.51817	27699.87
27	224007.38	24640.81	11000	2.331639	25648.03
28	235207.75	25872.85	11000	2.158925	23748.17
29	246968.14	27166.49	11000	1.999005	21989.05
30	259316.54	28524.82	11000	1.85093	20360.23
31	272282.37	29951.06	11000	1.713824	18852.07
32	285896.49	31448.61	11000	1.586874	17455.62
33	300191.31	33021.04	11000	1.469328	16162.61
34	315200.88	34672.10	11000	1.360489	14965.38
35	330960.92	36405.70	11000	1.259712	13856.83
36	347508.97	38225.99	11000	1.1664	12830.4
37	364884.42	40137.29	11000	1.08	11880
					2094004

AMOUNT ACCUMULATED BY MILLHOUSE WOULD BE $2094004