Rita is 26 and has a good job at a biotechnology company. She currently has $10,

Question

Rita is 26 and has a good job at a biotechnology company. She currently has $10,000 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 8.5 percent, and she plans to leave it untouched until she retires at age 66. Rita estimates that she will need $900,000 in her total retirement nest egg by the time she is 66 in order to have retirement income of $20,000 a year (she expects that Social Security will pay her an additional $15,000 a year). How much will Rita’s IRA be worth when she needs to start withdrawing money from it when she retires?

Explanation / Answer

FUTURE VALUE OF IRA

= PRESENT VALUE OF IRA * FVIF 8.5%,40PERIODS

= $10000 * 26.1330

= $261330

RITA'S IRA BE WORTH OF $261330 WHEN SHE NEEDS TO START WITHDRAWING MONEY FROM IT WHEN SHE RETIRES.

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