Time Value of Money

You just started working full-time, earning $100,000 per year. Your goal is to have $5 million in your 401(k) plan by your 61st birthday (i.e., 40 years from today). Assume 3% inflation per year. If you can earn 10% per year annualized in an S&P 500 mutual fund, after all expenses, inside a 401(k) with a dollar for dollar match up to 10% of your income, how much would you need to save each month to have that $5 million:

a) If that $5 million is in future nominal dollars;

b) If that $5 million is in today’s equivalent purchasing power future dollars;

c) If your marginal tax rate is 34% federal plus 7% state, what would the after-tax cost of your investments be for (i) and (ii) if you relied on the employer match for of your monthly contributions?

d) In retirement, you plan to draw $10,000 per month of principal from your investments. If you were 100% invested in stock mutual funds (like the S&P 500), would you get more or less than the rate of return on the S&P 500, and why?