Question

Matt Christopher is a 25 year old mechanical engineer earning 60,000 dollars next year. He expects his salary to increase 5% yearly until retirement at age 65. If he saves 10% of his salary, and invests his money in a fund earning 9% compounding interest, how much will he have in his retirement fund?

Answer 1

Answer:

After 40 years of working, and savings 10% of his salary per year, and his retirement account earning a 9% compounding interest rate, Matt should have $3,984,402 in his retirement account.

Explanation:

The reason this number is so high, is that his base salary is quite high ($60,000) and it increases by 5% each year during 40 years. At the end of year 40, his salary should be $402,85 per year. The 9% compounding interest rate is also high, it means that every dollar invested next year will generate $31.41 dollars in 40 years.

I solved this question by preparing a table on excel.

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