Using the following vignette answer the five questions below. You recently graduated college and just celebrated your 23rd birthday. You landed a job that will pay you $45,000/year, and offers you full benefits (health insurance and a 401k retirement plan).
You are happy to have landed this new job because you had to take out $28,000 in student loans, and you will have to start paying the loan back soon.
Your student loan is structured as a 10 year fully amortized loan with an interest rate of 4.125% per annum and required monthly payments.
You are also happy to land this new job because it will allow for you to retire in the future, you hope to retire at age 65.
You are planning to live in retirement for 25 years, and would like your retirement savings to pay you $50,000 per year (lump sum at the beginning of each year). You believe that you will invest your assets at 3.5% while you are in retirement, and 12% during your working years.
How much will your monthly student loan payment be?
Assume that you pay $500 per month on your student loan. How many months would it take to pay off your loan?
Given the information above, how much do you need to save in your retirement account to have $50,000/year during retirement?
Assuming that you have zero saved for retirement when you start your job, how much would you have at retirement if you made monthly contributions of 3% of your monthly salary?
Making the same assumptions as the previous question, how much would you have it you saved 6% of your gross monthly salary?