Jacqueline joined her company's defined contribution plan when she was 30. By age 65, her pension savings had grown to about $500,000. If she put that money in a retirement income fund the year she turned 65, and her money there grew 6% a year, her pension would equal about $3,300 a month, before taxes. That would be a yearly income of $39,600 until her 90th birthday.
But Jacqueline doesn’t want to retire until age 69. What will happen to her pension if she waits four extra years to retire? Under the plan rules, the company doesn’t have to pay anything more into her pension after age 65. But her savings have an extra four years to grow before she starts to spend them.
The result: If her savings grow 6% a year between ages 65 and 69, Jacqueline's pension account will grow to $631,238 (or $4,224 per month), before taxes. That’s more than a 20% increase in just four years – almost $1,000 more every month.
Jacqueline's Monthly Pension Payment
Note: The examples above are for simple illustration only. They do not reflect any tax savings or the impact of inflation and salary increases on contributions. Actual investment earnings may be more or less than the rates shown here.
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