Ruby is 25 and has a good job at a biotechnology company. She currently has $10,
ID: 2742746 • Letter: R
Question
Ruby is 25 and has a good job at a biotechnology company. She currently has $10,800 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 7 percent, and she plans to leave it untouched until she retires at age 65. Ruby estimates that she will need $907,000 in her total retirement nest egg by the time she is 65 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)
Calculate how much will Rubys IRA be worth when she needs to start withdrawing money from it when she retires. Use this number to calculate how much money will she have to accu,=mlate in her companys 401k plan over the next 40 years in order to reach her retirement goals. Your anser should be how much money she needs to accumulate over the next 40 years.
Explanation / Answer
Rubys current IRA = 10800
r = 0.07
n = 40
IRA woth after 40 years = FV(0.07,40,,-10800,1) = 161724.1447
Social security fund worth after 40 years = 15000*40 = 600000
So, she must accumulate in her companys 401k plan over the next 40 years = 907000 - 161724.15 - 600000 = 145275.86
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