Question

Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31 , you just received your salary of $47,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next year. You have decided that one year from today you will begin depositing 5 percent of your annual salary in an account that will earn 11 percent per year. Your salary will increase at 7 percent per year throughout your career. How much money will you have on the date of your retirement 44 years from today?

Answer 1

To calculate the retirement savings after 44 years, you need to calculate the annual salary at retirement using the annual salary growth rate and then calculate the savings each year using the annual deposit rate and interest rate.

Step-by-step explanation:

To calculate the retirement savings after 44 years, we need to calculate the annual salary at retirement using the annual salary growth rate and then calculate the savings each year using the annual deposit rate and interest rate.

Let's break down the calculation:

1. Annual salary at retirement = Current salary * (1 + annual salary growth rate)years to retirement = $47,000 * (1 + 0.07)44
2. Annual savings at retirement = Annual salary at retirement * annual deposit rate = Annual salary at retirement * 0.05
3. Total savings at retirement = Annual savings at retirement * (1 + interest rate)years to retirement

Plugging in the numbers:

1. Annual salary at retirement = $47,000 * 1.0744 = $333,216.43
2. Annual savings at retirement = $333,216.43 * 0.05 = $16,660.82
3. Total savings at retirement = $16,660.82 * 1.1144 = $452,238.27

Therefore, you will have approximately $452,238.27 on the date of your retirement 44 years from today.