Bob is currently 30 years old, earns $60,000 per year and plans to retire at age 65.  Bob's employer allows him to contribute 5% of his income in a 401(k) and fully matches Bob's  contribution. Bob expects his investments will earn 10% annually between now and retirement.  

• Bob expects his income will grow at 3% per year between now and when he retires. If that is true, how much will Bob have in his 401(k) when he retires?

(i) What is the correct formula?  

iii What are the parameters of the problem (n, i, PV. PMT, FV)? 

(ii) What is the answer? 

After consulting actuarial tables, Bob expects to live 25 years after he retires. Bob will make his first withdrawal from his 401(k) the day he retires and withdraw annually thereafter. Bob will invest more conservatively once he retires and expects to earn 5% in his investments.  

(i)What is the correct formula?  

ii What are the parameters of the problem (n, i, PV. PMT, FV)? 

(iii)What is the answer? 

Answer rating: 100% (QA)

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