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62. (FIVE POINTS) ukasz was brought to tears reading an article in Forbes by Edward Siedle entitled The Greatest Retirement Crisis in American History. It noted that average Americans nearing retirement had less than $25,000 in their retirement accounts and that, in the decades to come, millions of elderly Americans will be slipping into poverty. ukasz was determined not to be one of the millions "too frail to work, too poor to retire. Armed with his recently acquired knowledge of the time value of money, he set his Kleenex box aside and reached for the Chapter 4 & 5 Template that he received from his Financial Management course at NYU. He intended to have a plan and was determined to start the first day of 2020. Any plan or forecast requires certain assumptions, he figured, and his first assumption was that he will retire early at the age of 60. ukasz was 30 years old at the beginning of 2020. In retirement, he wanted to be able to withdraw $5,000 from his savings account each last day of the month for the 25 years of his retirement (beginning January 1, 2050 through and including December 31, 2074). His plan was to use a 401(k) account. He loged into his 401(k) account to realize that he had a mere $3,838.03 in his account at the beginning of 2020. He planned to start his first contribution to his savings account on January 31, 2020 and intends to keep contributing the same amount on the last day of every month for 30 years. Figuring in the early years he can be more aggressive and will have the time to ride out natural cycles in the markets, he intended to invest in funds with a heavier weight in stocks than in bonds for the first 25 years (the first 300 months from January 1, 2020 through and including December 31, 2044). His assumption is that he will earn an annual rate of return of 12%, compounded monthly. For the five years before his retirement (from January 1, 2045 through and including December 31, 2049), ukasz realized he will want to be more conservative with his investments because he will be in less of a position to weather any serious drops in the markets. He intends to rebalance his portfolio to favor bonds and less risky stocks that will earn an annual rate of return of 8%, compounded monthly. In retirement (from January 1, 2050 through and including December 31, 2074), ukasz plans to shift his investments to certificate of deposits and the most conservative investment choices which he expects will yield an annual rate of return of 6%, compounded monthly. He is also assuming that his employers will match his contribution during the 30-year savings period at the rate of 50%. In other words, for every $1 that ukasz contributes to his account, his employers will contribute $0.50, so that $1.50 is deposited into his account. He also assumes that, in the last 5 years before his retirement, he will be making a higher salary and will be in a better position to contribute more to the account. He plans to double the amount of the contributions to his account compared to the first 25 years. At the conclusion of his retirement, ukasz would like to donate $1.15 to NYU to fund overworked and underpaid adjunct faculty. 17 Retirement Summary Saving Period 1 1/1/2020 12/31/2044 25 Saving Period 2 1/1/2045 12/31/2049 5 1/1/2050 12/31/2074 25 300 60 300 Begin date End date Years Months Contribution Employer match Annual % return Withdrawal amount Starting balance n/a 100% 50% 12% 200% 50% 8% n/a 6% (5,000.00) n/a n/a $3,838.03 n/a n/a How much should ukasz begin contributing on January 31, 2020? A. B. C. D. E. F. G. H. $150.00 $200.00 $212.06 $249.86 $270.97 $314.79 $415.47 $1,098.49 Financial Management - Midterm Exam Summary Saving Period 1 1/1/2020 12/31/2044 25 300 100% 50% 12% n/a $3,838.03 Begin date End date Years Months Contribution Employer match Annual % return Withdrawal amount Starting balance Saving Period 2 1/1/2045 12/31/2049 5 60 200% 50% 8% n/a Retirement 1/1/2050 12/31/2074 25 300 n/a n/a 6% (5,000.00) n/a n/a How much should ukasz begin contributing on January 31, 2020? A. B. C. D E. F. G. H. $150.00 $200.00 $212.06 $249.86 $270.97 $314.79 $415.47 $1,098.49 62. (FIVE POINTS) ukasz was brought to tears reading an article in Forbes by Edward Siedle entitled The Greatest Retirement Crisis in American History. It noted that average Americans nearing retirement had less than $25,000 in their retirement accounts and that, in the decades to come, millions of elderly Americans will be slipping into poverty. ukasz was determined not to be one of the millions "too frail to work, too poor to retire. Armed with his recently acquired knowledge of the time value of money, he set his Kleenex box aside and reached for the Chapter 4 & 5 Template that he received from his Financial Management course at NYU. He intended to have a plan and was determined to start the first day of 2020. Any plan or forecast requires certain assumptions, he figured, and his first assumption was that he will retire early at the age of 60. ukasz was 30 years old at the beginning of 2020. In retirement, he wanted to be able to withdraw $5,000 from his savings account each last day of the month for the 25 years of his retirement (beginning January 1, 2050 through and including December 31, 2074). His plan was to use a 401(k) account. He loged into his 401(k) account to realize that he had a mere $3,838.03 in his account at the beginning of 2020. He planned to start his first contribution to his savings account on January 31, 2020 and intends to keep contributing the same amount on the last day of every month for 30 years. Figuring in the early years he can be more aggressive and will have the time to ride out natural cycles in the markets, he intended to invest in funds with a heavier weight in stocks than in bonds for the first 25 years (the first 300 months from January 1, 2020 through and including December 31, 2044). His assumption is that he will earn an annual rate of return of 12%, compounded monthly. For the five years before his retirement (from January 1, 2045 through and including December 31, 2049), ukasz realized he will want to be more conservative with his investments because he will be in less of a position to weather any serious drops in the markets. He intends to rebalance his portfolio to favor bonds and less risky stocks that will earn an annual rate of return of 8%, compounded monthly. In retirement (from January 1, 2050 through and including December 31, 2074), ukasz plans to shift his investments to certificate of deposits and the most conservative investment choices which he expects will yield an annual rate of return of 6%, compounded monthly. He is also assuming that his employers will match his contribution during the 30-year savings period at the rate of 50%. In other words, for every $1 that ukasz contributes to his account, his employers will contribute $0.50, so that $1.50 is deposited into his account. He also assumes that, in the last 5 years before his retirement, he will be making a higher salary and will be in a better position to contribute more to the account. He plans to double the amount of the contributions to his account compared to the first 25 years. At the conclusion of his retirement, ukasz would like to donate $1.15 to NYU to fund overworked and underpaid adjunct faculty. 17 Retirement Summary Saving Period 1 1/1/2020 12/31/2044 25 Saving Period 2 1/1/2045 12/31/2049 5 1/1/2050 12/31/2074 25 300 60 300 Begin date End date Years Months Contribution Employer match Annual % return Withdrawal amount Starting balance n/a 100% 50% 12% 200% 50% 8% n/a 6% (5,000.00) n/a n/a $3,838.03 n/a n/a How much should ukasz begin contributing on January 31, 2020? A. B. C. D. E. F. G. H. $150.00 $200.00 $212.06 $249.86 $270.97 $314.79 $415.47 $1,098.49 Financial Management - Midterm Exam Summary Saving Period 1 1/1/2020 12/31/2044 25 300 100% 50% 12% n/a $3,838.03 Begin date End date Years Months Contribution Employer match Annual % return Withdrawal amount Starting balance Saving Period 2 1/1/2045 12/31/2049 5 60 200% 50% 8% n/a Retirement 1/1/2050 12/31/2074 25 300 n/a n/a 6% (5,000.00) n/a n/a How much should ukasz begin contributing on January 31, 2020? A. B. C. D E. F. G. H. $150.00 $200.00 $212.06 $249.86 $270.97 $314.79 $415.47 $1,098.49
