2/17/2005
9
ÒEquivalentÓ Defined Contribution Plan
¥Under optimistic assumptions, what percent of salary must be saved to purchase an annuity equivalent to the DB pension of $4,400/month?
¥
¥Assume: starting salary $1,388, increasing 5%/year for 30 years (=$4,400); 8% investment return.
¥22 year life expectancy at age 63 (IRS standard, male).
¥Need fund of $716,000 at retirement; return of 4.8%. See http://www.totalreturnannuities.com/
¥Requires contribution of over 21% of salary.
¥AND: no benefit to survivor, no inflation protection, no death or disability benefit.