1. For how many years a retirement fund will last if one follows 4% approach to
ID: 2757093 • Letter: 1
Question
1. For how many years a retirement fund will last if one follows 4% approach to retirement distribution at the beginning of every year? Assume expected return and inflation to be 6% and 4.5% respectively?
2. Marcus has been employed by GCD Enterprises for 15 years, and currently earns $75,000 per year. Marcus saves $15,000 per year. He plans to pay off his home at retirement and live debt free. He currently spends $12,000 per year on his mortgage. Assume payroll taxes to be 7.65%. What do you expect Marcus’ wage replacement ratio to be based on the above information?
Explanation / Answer
Answer No. 2
Figures in $
Particulars
Amount
Current earning per year
a
75000
Less : payroll taxes (7.65% of 75000)
b
5737.50
Current earning per year (a-b)
c
69262.50
Saving per year
d
15000
Spending per year on mortgage
e
12000
Net saving per year after mortgage (d-e)
f
3000
Wage replacement ratio(%) (f/c*100)
4.33
Answer : Expected wage replacement ratio will be 4.33%.
Figures in $
Particulars
Amount
Current earning per year
a
75000
Less : payroll taxes (7.65% of 75000)
b
5737.50
Current earning per year (a-b)
c
69262.50
Saving per year
d
15000
Spending per year on mortgage
e
12000
Net saving per year after mortgage (d-e)
f
3000
Wage replacement ratio(%) (f/c*100)
4.33
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