CountFire14523
Review and Application Questions Complete any four questions…
Review and Application
Questions Complete any four questions available on the textbook page(s) below, providing a brief narrative explanation for your answer. · Page 515-516 Answer each of the following questions and provide your rational for your choice for each one. You will not receive full credit unless you provide your explanation.
1. Jasmine is 53-years old and earns $115,000 a year. She saves 12% of her annual gross income for retirement. Jasmine will pay off her mortgage by the time she retires. Her monthly payment is $1,950.21. Calculate Jasmin’s wage replacement ratio using the top-down approach (round to the nearest %) and using pre-tax dollars. Assume that she wants to maintain her lifestyle.
a. 60%
b. 68%
c. 80%
d. 88%
2. Ralph, a 40-year-old nurse who earns $80,000 a year, saves 14% of his annual gross income. Assume that Ralph wants to maintain his exact pre-retirement lifestyle. Calculate Ralph’s wage replacement ratio using the top-down approach (round to the nearest %) and using pre-tax dollars.
a. 70%
b. 78%
c. 86%
d. 92%
3. Colin is 40 years old and wants to retire in 27 years. His family has a history of living well into their 90s. Therefore, he estimates that he will live to age 95. He currently has a salary of $150,000 and expects that he will need about 75% of that amount annually if he were retired. He can earn 8 percent from his portfolio and expects inflation to continue at 3 percent. Some years ago, he worked for the government and expects to receive an annuity that will pay him $20,000 in todays dollars per year beginning at age 67. The annuity includes a cost of living adjustment, which is equal to inflation. Colin currently has $200,000 invested for his retirement. His Social Security benefit in today’s dollars is $30,000 per year at normal age retirement of age 67. How much does he need to accumulate at age 67 exclusive of his pension and Social Security benefits?
a. $2.1 million
b. $2.2 million
c. $2.8 million
d. $2.9 million
4. Jordan is 55 and wants to retire in 12 years. His family has a history of living well into their 90s. Therefore, he estimates that he will live to age 97. He currently has a salary of $100,000 and expects that he will need about 82% of that amount annually if he were retired. He can earn 9 percent in his portfolio and expects inflation to continue at 3%. Jordan currently has $325,000 invested for his retirement. His Social Security benefit in today’s dollars is $30,000 per year at normal age retirement of age 67. How much does he need to save each year at year end to meet his retirement goals?
a. $6,245
b. $7,659
c. $8,432
d. $9,252
5. Parker is 50 and wants to retire in 15 years. His family has a history of living well into their 90s. Therefore, he estimates that he will live to age 95. He currently has a salary of $120,000 and expects that he will need about 65% of that amount annually if he were retired. He can earn 9% in his portfolio while he is working. However, he expects that he will only earn 7 percent in his portfolio during retirement. He expects inflation to continue at 3%. Parker currently has $350,000 invested for his retirement. His Social Security benefit in today’s dollars is $30,000 per year at normal age retirement of age 67. His Social Security benefit will be reduced by 6 2/3 percent for each year he begins collecting before full age retirement. How much does he need to save each year to meet his retirement goals?
a. $2,465
b. $2,987
c. $4,975
d. $6,855
