John Smith is 30 years old and graduated from CSUSM some years back, with a Business degree and an emphasis in Marketing. John is currently employed as a Marketing Manager at a well-known corporation. He has progressed well in his career, with the ultimate goal of becoming the companys CEO. Johns current salary of $78,000 has increased at an average rate of 5% per year, with routine merit raises, and he expects it keep increasing.

Johns firm, ABC Corporation, has a defined contribution plan (401k) plan in place. Employees are allowed to contribute up to 15% of their gross annual salary. Unfortunately, John has not yet taken Professor Money Mans advice to Save, Start Young, and Pay Yourself First. Instead, John has enjoyed his post-college, nice-salary life by leasing a new car, renting an apartment and going out to Players every weekend. Now that he has wedding plans on the horizon, John has come to the realization (with help from his fiance, Jane Doe) that its time to start saving while hes still relatively young!

John expects that the lovebirds two largest future expenses will be the cost of a wedding (short-term), then later the down payment on a house (intermediate-term). The couple plans to spend $10,000 of their own money on the wedding in twelve months. They also hope to purchase a $400,000 house within 5 years. Janes parents have promised to match their 10% down payment, but only if they manage to save it within 5 years. Finally, John would like to retire at age 60, since his own father died at age 59 and did not get to enjoy the fruits of his labor in retirement. Both future spouses agree that John will automate his savings by setting up monthly contributions to his wedding, house and 401k accounts.

1) John Smith is finally ready to take advantage of his employers 401k plan towards his retirement goal of age 60. (He understands that 401k (or IRA) withdrawals avoid that 10% penalty by waiting until after age 59-1/2 to start withdrawing money.) Assume that John contributes 10% of his current salaryevery year, with an 8% annual return compounded annually. How much would he have saved at age 60?

2) How much money would John have to save every year to achieve an age 60 balance of one million dollars? What percentage of his current salary is that annual savings amount?

3) Johns fiance, Jane Doe, is adamant about getting married in the next year. She is insisting that John makes saving towards the $10,000 needed their top priority. John recalls that Professor Money Man says, dont invest in long-term investments with short-term money. Therefore, he plans to keep the wedding account in the bank and buy short-term (under 1-year maturity) CDs. Assuming John stays continuously invested in CDs yielding 2% annual yield for the duration of each monthly deposit from the beginning month (Month 0),how much will he have to contribute to the wedding fund every month for the next 12 months?

4) Jane does acknowledge that saving for a home down payment is not as big of a priority. But both future spouses agree that they should start putting money away towards the goal of $40,000 within five years. John recalls that an intermediate-term savings plan should not take as much risk, so he will plan to earn 4% annuallywith a conservative strategy for their house fund. How much money will he have to save every month for the next 60 months?

5) Planning on an early retirement at age 60, John will start withdrawing from his 401k every month. He plans to start with $1,000,000 in his 401k, with a life expectancy of 85 years. Assuming a rate of return on his account of 6% annually, how much can he withdraw every month for his retirement expenses? (HINT: use I/Y = 6%/12 = 0.5% monthly)