Question

Leah is looking forward to retirement and hopes to be able to retire (stop working) when she is 65. Her wage replacement ratio is estimated to be 80%. Given Leah’s health and family history, a conservative estimate for her life expectancy is 90 years. Leah’s Social Security benefit statement indicates that her Social Security retirement benefit (in today’s dollars) is $18,000 per year. Her annual earning is $110,500.

What amount of retirement funds will she need at retirement in order to maintain her standard of living until age 90? Assume Leah can earn 5% on her investments up to and during retirement, and that the rate of inflation over the rest of her life averages 3% per year.

Answer 1

  Answer:-

Leah Annual Earning = $110,500 per year

Expect Age of retire (65 year) = $198,900 per year

Social Security retirement benefit = $18,000 per year.

(in today’s dollars) --------------------------------

= $214,900 per year

Investment earning 5% = $5,525 per year

------------------------------

= $220,425 per year

Rate of inflation 3% = $3,315 per year

-----------------------------

= $217,110 per year

-----------------------------

Leah need $217,110 per year pension funds in retirement to maintain his standard of living until the age of 90.

Retirement Planning:-

A crucial part of retirement planning is life expectancy. How long you expect to live for is important for working out how much money you’ll need in retirement. Yet, for many people this number is basically a wild guess, if it’s considered at all. That’s a problem because getting this right can be the difference between having a comfortable retirement and not.

Those who make it to 65 can be expected to live another 20 years and if you make it to 90 you can be expected to live another 12 years, approximately. Also, women tend to have slightly longer life expectancies than men and those of Hispanic origin tend to life slightly longer than white non-Hispanics, who in turn live slightly longer than Black non-Hispanics. However,the gaps between racial groups may be narrowing. Of course, lifestyle, family history and health are significant factors too, but are a little harder for the government statistics to capture.