How much would you need to save every two weeks

Assignment Help Finance Basics

Reference no: EM132148883

Question - Congratulations! Today is your 20th birthday, but you are broke. You just started working full-time, earning $50,000 per year. Your goal is to have $10 million by your 65th birthday (i.e., 45 years from today). Your employer offers a 401(k) plan, and within that plan you choose to invest in an extreme low-cost S&P 500 index mutual fund (like ones offered by Schwab, Fidelity, Vanguard, etc.). The long-term expected return on the S&P 500 index mutual fund is 10% per year. Your employer pays you every other week. 401(k) plan contributions are tax deductible.

(a) Ignoring taxes, if the employer offers no match on your contributions, how much would you need to save every two weeks for you to reach your goal?

(b) Ignoring taxes, if the employer offers a 10% match on your contributions, how much would you need to save every two weeks for you to reach your goal after accounting for the employer match?

(c) Assume your Federal marginal tax rate is 24% and State marginal tax rate is 6%. What is the answer to question (b) on an after-tax basis (i.e., how much do you have to contribute after the employer match and net of tax savings)?

(d) All of the above amounts are nominal. If your inflation expectation is 3% per year, how much would you have to save after employer match, net of tax savings, and after accounting for inflation, to achieve a long-term goal of $10 million in today's (real) dollars by your 65th birthday?

(e) Will your return likely be higher or lower than that of the S&P 500, and why?

Reference no: EM132148883

Questions Cloud

What mistakes were committed by hudson valley employees : What mistakes were committed by Hudson Valley employees in this case? A: How could they have been avoided or at least minimized?

How does solow model work in the third world countries : How does Solow Model work in the third world countries where the Population growth is very high. Justify your post with current examples and application.

What happens to the variable cost : Fixed cost versus variable cost use a key study that illustrate your understanding of the concepts. Most importantly what happens to fixed cost.

Teespring demonstrated creative and innovative leadership : In what way have the founders of Teespring demonstrated creative and innovative leadership?

How much would you need to save every two weeks : If the employer offers a 10% match on your contributions, how much would you need to save every two weeks for you to reach your goal

Effect of worsening the adverse selection problem : Insurance regulations like "community rating" and "guaranteed issue" have the effect of worsening the adverse selection problem.

What were the actual charges filed against them : Benevis and Kool Smiles Dental Clinics have joined the ranks of medical professionals and businesses found guilty of defrauding the government.

What kind of monetary and fiscal policies : What kind of monetary and fiscal policies could be introduced to reduce unemployment?

Needs to be included in job description : Identify and breifly explain 3 key pieces of information that needs to be included in a job description.

User Account

All Pages