Janine is 25 and has a good job at a biotechnology company. Janine estimates that she will need $875,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $20,000 a year. (She expects that Social Security will pay her an additional $15,000 a year.) She currently has $5,000 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 8 percent, and she plans to leave it untouched until she retires at age 65. How much money will Janine have to accumulate in her company’s 401(k) plan over the next 40 years in order to reach her retirement income goal? Use Exhibit 1-A.

Janine estimates that she will need $875,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $20,000 a year. (She expects that Social Security will pay her an additional $15,000 a year.) She currently has $5,000 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 8 percent, and she plans to leave it untouched until she retires at age 65. How much money will Janine have to accumulate in her company’s 401(k) plan over the next 40 years in order to reach her retirement income goal? Use Exhibit 1-A.

IRA Sum = $ 5000
Growth ratio of IRA= 8%
Growth period = 40 years

Generally the equation for the IRA Amount at Retirement is mathematically given as

IAR= 5000 * 1.08^(40)

= 108622.6

Since estimate is at

$875,000

Therefore

Accumulation in 401,000 = 875000 - 108622.6

Accumulation in 401,000 = 766377.4

Hence

The amount of money Janine will have to accumulate in her company’s 401(k) plan over the next 40 years is

$ 766377.4

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