Question

At age 37, Paul Li decides to plan for his retirement at age 67. He currently has a net worth of about $45,000 including the equity in his home. He assumes that his employer will contribute $3,500 to his retirement plan at the end of each year for the next 30 years. He plans to put one-half of his money in a mutual fund containing stocks and the other one-half in a mutual fund containing bonds.
Estimate Li’s future accumulation if his net worth grows at 5% and the mutual funds with stocks and bonds grow at 10% and 6%, respectively. (Hint: calculate 3 parts and add all 3)

Answer 1

Net worth grows at 5%

5% of $45,000 is $2,250

2,250 + 45,000= $47,250 

Mutual funds grows at 10%

10% of $52,500 is $5,250

5,250 + 52,500 = $57,750 

Bonds grows at 6%

6% of $52,500 is $3,150

3,150 + 52,500 = $55,650 

His accumulation 30 years from now:

$47,250 + $57,750 + $55,650 = $160,650

Answer 2

Paul Li decides to plan for his retirement 30 years from now. If Li’s accumulation grows 30 years from now here is the computation of his accumulation:

1.       Net worth grows at 5%

5% of $45,000 is $2,250

2,250 + 45,000= $47,250 A

2.       Mutual funds grows at 10%

10% of $52,500 is $5,250

5,250 + 52,500 = $57,750 B

3.       Bonds grows at 6%

6% of $52,500 is $3,150

3,150 + 52,500 = $55,650 C

We have to add all the three to know his accumulation 30 years from now:

A + B + C = D where d is the future accumulation

$47,250 + $57,750 + $55,650 = $160,650