Question
Helen is 45 years old and plans to retire at 65. Assume Inflation is 4%. Helen currently earns $75,000/year Expects raises to average 6% per
Helen is 45 years old and plans to retire at 65. Assume Inflation is 4%. Helen currently earns $75,000/year Expects raises to average 6% per year (2% real gain) Retirement Wage = $75,000(1.06)20 = $240,532 Purchasing power of $240K in todays dollars is approximately $75,000(1.06/1.04) = $109,777 Helen plans to live off 70% of her pre-retirement wage when she retires at age 65. Helen estimates that Social security will replace 20% of her income. Helen estimates that her employer provided plan (e.g., 401(k)) will be equal to 30% of her pre-retirement salary. Purchasing annuity at age 65 would cost approximately $1100 per every $100 of income desired. Therefore, Helen will need ($48,000/$100)x($1100) = $528,000 by age 65 to fund the annuity To accumulate $528,000 by age 65 with an assumed interest rate of 6%, Helen will need to save about how much per year?
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