Question
Today, you celebrated your 30 th birthday. You just landed a new job at Ford Motor Company. Ford provides you a 401-k plan, and you
- Today, you celebrated your 30th birthday. You just landed a new job at Ford Motor Company. Ford provides you a 401-k plan, and you decide to deposit $400 every month for 15 years. City matches your 401-k at 100% (matching funds are deposited annually) and pays interest at 6.6% compounded monthly. At the end of 15 years you change the job to Volkswagen (VW), and you decide to roll-over your entire 401-k to VW.
At Volkswagen, you contribute 7% of your salary to the 401-k; deposits are made annually. Your starting salary at Volkswagen is $75,000 and you expect to earn 2% pay raise every year. Volkswagen matches your 401-k at 75% (matching funds are deposited annually).
You had a hardship withdrawal of $50,000 at age 52. The money was returned to account at age 58.
Volkswagen 401-k account pays interest at 8% compounded quarterly. (Caution not a typo)
You retire from VW when you reach 63.
On your 63rd birthday, you do a trustee to trustee rollover of your money from VW to Charles Schwab. That account pays interest at 7.2% compounded monthly. You leave the account at Schwab for the rest of your life.
You withdraw $60,000 from your account at Schwab on your 67th birthday.
- Determine the total account balance (including company match) in your VW account on your 63rd birthday.
- Beginning age 70, you start withdrawing $11,000 every month.
Also, you withdrew $50,000 (a one-time withdrawal for the birthday party) on your 75th birthday.
Determine the balance in the account on your 80th birthday.
- Beginning age 80, you will start withdrawing an amount every month, so that the balance at age 90 is zero. What is that monthly withdrawal amount?
- Ford Motor Company Find the Account Balance at age 45: age 30-45 (1st 15 years)
You: PMT= $400.00, N= 12(15)= 180 months, I= 6.6/12=.55% month = FV $122,468.67
Company: I=6.6 CM EAR=6.8034%
FV when PMT = 400(12) = 6000/year, N = 15 years, I = 6.8034% per year FV $148,510.52
Total Balance at end of year 15, at 45 years old = $270,979.19
- Volkswagen: Find the account balance at age 63.
EAR at Volkswagen: If the interest rate is 8% CQ, the EAR = 8.2432 %
Rollover money:
Find FV when PV = 270,979, N = 216 months, and I = 8/4 = .02% per month
FV = $282, 940.61
Your & Company Contribution:
First year: your contribution is 7% of $75k or $5,250; deposits made annually
Co. Match in 1st year: At 75%, the match = 0.75(5250) = $3937.50; deposits made annually.
Total Deposit at end of first year = $9187.50.
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