Michael and Michelle currently earn a combined gross income of $200,000 per year and each earns...

Michael and Michelle currently earn a combined gross income of $200,000 per year and each earns $100,000 per year. The currently pay $2100 per month on their mortgage and plan to continue to live int he same house at retirement. The mortgage will be paid off just before their planned retirement at age 67. Michael is int he Navy Reserve and will soon qualify for retirement. This will result in him receiving a military retirement pay of $2250 per month as soon as he turns age 65. Michelle expects a small pension from a prior company and should receive approximately $600 per month when she turns 65. They currently each save $1200 per month into each of their employer's 401k plans and save an additional $1000 (total combined) per month outside of the 401(k) plan. They both expect to receive roughly $2100 per month from social security at age 67. They would like to maintain their same standard of living in retirement. What is their wage replacement ratio?

a.42%

b.77%

c.59%

d.67%

Solutions

Expert Solution

	Michael	Michella
Gross Income per Year	$100000	$100000
Total Pre-Retirement Income =	$200000

Retirement Income	Monthly	Yearly for Michael	Yearly for Michella

Receive from Millitary retirement	$27000	0
Pension from Prior Company		0	$7200
Receive from social security		$25200	$25200
Total Retirement Income		$52200	$32400

Total Retirement Income = $52200+$32400
= $84600

*Wage Replacement Ratio = Retirement Income/Pre-Retirement income 100**

Wage Replacement Ratio = $84600/$200000*100
42.30%
So answer is a.42%

ekkarill92 answered 1 year ago

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