Question

You are planning to save for retirement. You would like to retire 24 years from today and you currently have $200,000 set aside. You anticipate saving $750 per month ($500 out of your pocket and $250 from a company match into your 401(k) plan. You anticipating earning an 8.8% rate of return over the next 10 years. After 10 years, you will change your monthly savings to $X per month (combined contribution from you and your employer into your 401(k) plan) over the last 14 years of your savings period. During this 14 years, you will lower your risk-return strategy so that the expected return will be 7.6%. Once you hit retirement, you want to take out $150,000 on the day you retire. After that you will take out money at the end of each year as follows:

            Years 1-6          $120,000 per year

            Years 7-14        $140,000 per year

            Years 15-20      $130,000 per year

Finally, you want to have $300,000 remaining at the end of the 20-year retirement period and you anticipate earning 4.0% per year in retirement (Hint: Note that the $300,000 remaining is at year 20 of the retirement period so that your year 20 CF is actually $430,000 – the last $130,000 plus the $300,000). Figure out how much you need to save per month over the final 14 years leading to retirement in order to meet your plan.

Answer 1