Janine is 50 and has a good job at a biotechnology company. Janine estimates tha

Question

Janine is 50 and has a good job at a biotechnology company. Janine estimates that she will need $899,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $22,500 a year. (She expects that Social Security will pay her an additional $18,500 a year.) She currently has $5,000 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 8 percent, and she plans to leave it untouched until she retires at age 65. How much will Janine’s IRA be worth when she needs to start withdrawing money from it when she retires? Use Exhibit 1-A.

Exhibit 1-A:

http://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/finance/kapoor_12e/exhibit%201A.png

Explanation / Answer

Years until Janine retires = (65-50) = 15 years

Interest rate for growth = 8%

Present Value in IRA = 5000

If Janine leaves $5000 alone for 15 years at 8% annually, then she will have

5000*(1.08^15) = $ 15860.85

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