FINC 331 Week 3 student discussion

Anonymous
timer Asked: Apr 3rd, 2016

Question description

Please respond to Dana:

According to Federal Deposit Insurance Corporation (FIDC) (2016), the current average savings interest rate (as of 28 March, 2016) is 0.06 or 6% - the example rate given in the CNN Calculator (2016) was just 5%.  For the purpose of this week’s discussion, I have changed the interest rate in the CNN calculator from 5% to the current national average of 6% found in the FDIC website.

At 51, if you contribute $0 now and $543 a week, by the time you reach retirement age of 70, your earnings will have reached your goal of $1,001,731.  This comes to $2353 a month (if you consider 52 weeks a year versus 4 weeks a month).  But if you contribute monthly as oppose to weekly, your earnings will drop to $992,447.

If starting at 25 with a retirement age of 65 and starting with $0 in savings, contributing $503 a month will earn your daughter a savings of $1,001,719.  If we take the monthly cost and multiply by 12 (annual contribution) and then divide by 52 (weekly contribution), the weekly contribution will be $125 (rounded down) and the savings will increase to 1,084,193.

If starting at age 2 and having a goal to contribute until your grandson graduates from college (where he will then pick up the bill), you and your daughter could contribute $28 weekly cumulative, bringing the earnings to $56,245 by his 22ndBirthday.  If he then deposits the $56,245 and continues the $28 weekly contribution for another 43 years, his retirement savings will turn into $1,036,677.  If monthly payments were considered, then the payments would be $121 (rounded down) and would earn $1,026,195.

Retirement Savings

References:

CNN Calculator, (2016).  Savings interest calculator.  CNN Money.  Retrieved fromhttp://money.cnn.com/calculator/pf/moneygrow/.

FDIC, (2016).  Weekly national rates and rate caps.  Federal Deposit Insurance Corporation.  Retrieved fromhttps://www.fdic.gov/regulations/resources/rates/.


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