Question

You want to have $1,200,000 when you retire and you are in a defined contribution plan. You can earn 9 percent per year on the money invested and you will retire in 25 years. Your employer also contributes to your plan. The employer will contribute 4 percent of what you put into the plan each year. How much do you have to contribute per year to meet your goal

Answer 1

Annual deposit= $13,600.8

Step-by-step explanation:

Giving the following information:

You want to have $1,200,000 when you retire and you are in a defined contribution plan.

Interest rate= 9%

Number of years= 25 years.

The employer will contribute 4 percent of what you put into the plan each year.

First, we need to calculate the total annual contribution:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A=(1,200,000*0.09) / [(1.09^25)-1]

A= $14,167.50

Now, your annual deposit:

Annual deposit= 14,167.5*0.96= $13,600.8