15 ASSUMPTIONS: B C D E F G 16 Weighting Expected NET Return We are using a simple arithmetic mean. No rebalancing, no benefits from diversification. 17 Equities 60.00% 8.00% 18 Fixed Income 40.00% 3.75% 19 Simple Weighted Average Return= 6.30% 20 $60,000 (1.04)^40 21 Assumptions: 22 Starting Salary = $60,000 23 Nominal Salary Growth = 4.00% 24 Employer Matching Assumption = 3.00% 25 Ratio: Final balance / final salary = 10.03 > 10X Salary Year 40 $288,061 Portfolio Value Year 40 $2,889,737.02 26 27 401k Contribution % of Salary = 11.38% Solve for this number 28 29 A) Theoretical Estimate of 401K Portfolio Growth Until Retirement at Age 65: 30 31 32 Your Age Salary 401k Value at Beginning of Period Personal Annual 401k Contribution Employer Annual 401K Contribution 33 25 $60,000 $0.00 $6,825 $1,800 Portfolio Annual Return on 401k $543.38 401k Value at Ending of Period $9,168.38 34 26 $62,400 $9,168.38 $7,098 $1,872 $1,142.72 $19,281.09 35 27 $64,896 $19,281.09 $7,382 $1,947 $1,802.42 $30,412.32 36 28 $67,492 $30,412.32 $7,677 $2,025 $2,527.20 $42,641.47 37 29 $70,192 $42,641.47 $7,984 $2,106 $3,322.08 $56,053.58 38 30 $72 999 $56 053 58 $8.304 $2 190 $4 192 47 $70 739 69