An important takeaway from this chapter is the need to save a portion of every dollar earned. Using an accelerating personal savings rate is one strategy to help someone save effortlessly.

Instructions

Answer the following questions based on this strategy.

1. Assume that you begin saving 3% of your total income in an employer-provided retirement plan at work. Each year, your income increases by 4%. As a result, you increase the percentage of your income you devote to your retirement plan by 2%. How long will it take for you to be saving at least 20% of your income? (Assume no taxes.)
2. Based on your calculations from part a, how much will you be saving (using the end-of-year savings rate) over the next 10 years if you earn $30,000 this year?
3. What is an alternative approach you might recommend for this situation? Why might it be better?