Question
John has just turned 45 and has 100,000 in his non-retirement investment portfolio. He plans to retire in 20 years and wishes to accumulate 1
John has just turned 45 and has 100,000 in his non-retirement investment portfolio. He plans to retire in 20 years and wishes to accumulate 1 million in his non-retirement investment portfolio by this time. He plans to deposit 20,000 to this account on his 46th birthday, and increase this amount by 2% each year thereafter until his retirement date. For planning purposes, he expects his portfolio to grow at 6% pre-tax EAR for the first 10 years, and then grow by only 4% pre-tax EAR for the last 10 years. His tax rate is 40%. Can John meet his objective? How much money will he have accumulated in his retirement account if all goes according to expectations?
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