What percent of your first-year salary must you contribute

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Reference no: EM131825313

You just landed a Job that will start shortly after you graduate. They are offering a salary of $60,000 per year. You expect the salary to grow by 2% per year until you retire. You plan to retire after 45 years of work and be retired for 25 years. During retirement you would like to have (each year) the purchasing power of $80,000 today. Inflation is expected to be 2.5% per year (forever). You will make your withdrawals at the beginning of each year of retirement. You will contribute a constant percentage of your salary into your 401k (retirement vehicle) at the end of each year of work, except the final year. The 401k is expected to return 8% per year during each year of contributions, and 3% per year afterwards (during retirement and the year before it). Note that you retire one year after you make your last payment. The prior two sentences help with timing issues. What percent of your (60k) first-year salary must you contribute (assuming you keep this percent going throughout the saving window)?

Reference no: EM131825313

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