Question
Christine Zhang is saving for retirement and wants to determine what percentage of her salary should be saved each year into an IRA. She just
Christine Zhang is saving for retirement and wants to determine what percentage of her salary should be saved each year into an IRA. She just turned 30 and, based on the employment practices of corporations, expects that her company will force her into early retirement at age 55 when a new IRA rule would permit her to withdraw funds from the IRA without penalty. Her current salary is $40,000 and expects this to grow 5% a year. Upon retirement, she expects that she will be able to live on annual IRA withdrawals equal to 75% of her final salary adjusted by 3% inflation each year. She hopes to achieve an 8% return on her IRA investments.
A)If her life expectancy is 85, what amount should she have accumulated in the IRA by retirement age to permit withdrawals equal to her anticipated expenses?
B)In order to accumulate that amount, what percent of her starting and future salary should she save?
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