Reference no: EM131871346

The problem I have with such claims is that many people invest through a 401(k) or 403(b) plan where the contribution is a fixed percentage of salary, and salary changes every year. A starting professor at SEU is likely to make $55,000 and get a 3% raise every year (not exactly right, but close enough for our purposes). The SEU retirement plan has a 12% contribution (5% withheld from the paycheck with a 7% matching contribution, but those details are irrelevant here; we're also going to ignore the 1-year eligibility delay for the sake of simplicity). If the new professor works for 35 years, how much would their retirement plan be worth if it earns a good 8% annual return? How does that compare to a very conservative portfolio that earns 3% instead?