Kayla comes from a family of teachers and has always known
that is what she wants to do. She is now in her third year of
teaching. She wants to take advantage of extra savings since
she is young and has a long time horizon (years she can invest
before retiring).
Kayla would like to take advantage of compound growth
over time by investing more aggressively when she is young.
As she gets closer to retirement, she wants to make sure her
investments are insulated from market ups and downs, so she
has less risk of losing money.
Kayla’s key information:
» Kayla is 30 years old.
» She would like to retire at age 60.
» Kayla will assume a 7% rate of return until she reaches age
45 (15 years), a 6% rate of return between age 45 and 55 (10
years), and 5% rate of return from age 55 to 60 (5 years).
Case Study Questions:
1. Why is Kayla more concerned about the ups and downs of
the market later in her career, when she is older?
2. What will her account balance be at age 45 if she
contributes $200 per month? (Total investment over 15
years: $36,000; 7% rate of return assumed.)
3. Starting with the balance from question 2, what would her
account balance be at age 55 if she continues contributing
$200 per month? (Account Balance + an additional $24,000
over the next 10 years; 6% rate of return assumed.)
4. Starting with the balance from question 3, what would
Kayla have in her 401(k) by her retirement age of 60 if she
continues with $200 per month (Account Balance + an
additional $12,000 over the final 5 years of her career, 5% rate
of return assumed).
5. What tools can Kayla use to make sure her investment mix
matches her risk tolerance as she gets closer to retirement?
Action Steps
1. Log on to your account
2. Select an investment path
3. Review and rebalance investment mix every year
4. Fill out the participant survey
Kayla
