Evaluating Sophia Ramirez\'s Retirement Prospects Sophia Ramirez is 57 years old

Question

Evaluating Sophia Ramirez's Retirement Prospects Sophia Ramirez is 57 years old and has been widowed for 13 years Never remarried, she has worked full time since her husband died m dash in addition to raising her two children. the youngest of whom is now finishing college After being forced to go back to work in her 40s, Sophia's first job was in a fast-food restaurant Eventually, she upgraded her skills sufficiently to obtain a supervisory position in the personnel department of a major corporation, where she's now earning $58,000 a year. Although her financial focus for the past 13 years has of necessity, been on meeting living expenses and getting her kids through college, she feels that now she can turn her attention to her retirement needs. Actually Sophia hasn't done too badly in that area, either By carefully investing the proceeds from her husband's We insurance policy. Sophia has accumulated the following investment assets Other than the mortgage on her condo, the only other debt she has is $7,000 in college loans. Sophia would like to retire in eight years, and she recently hired a financial planner to help her come up with an effective retirement program. He has estimated that for her to live comfortably in retirement. she'll need about S37.500 a year (in today s dollars) n retirement income. Critical Thinking Questions After taking into account the income that Sophia will receive from Social Security and her company-sponsored pension plan, the financial planner has estimated that her investment assets will need to provide her with about Si5.000 a year to meet the balance of her tenement income needs. Assuming a 6 percent after-tax return on her investments, how big a nest egg will Sophia need to earn that kind of income? Suppose she can invest the money market securities, stocks, and bonds (the $72,600) at 5 percent after taxes and can invest the $47,400 accumulated in her tax-sheltered IRA and 40100 at 7 percent. How much will Sophia's investment assets be worth in eight years, when she retires? Sophia's employer matches her 40100 contributions dollar for dollar, up to a maximum of $3,000 a year. If she continues to put $3,000 a year into that program, how much more will she have m eight years, given a 9 percent rate of return? What would you advise Sophia about her ability to retire in eight years, as she hopes to?

Explanation / Answer

1. Current proposed income after the retirement is $15000 with her return on the current investments. She has to make up for another $22500, to get a total income of $ 37500 per year.

2. $72600 @5% after 8 years = $108038

$47400 @7% after 8 years = $82580

Total worth = $190618

3. 401(k) contributions $6000 on a monthly basis @9% after 8 years on a monthly = $842940

4. She has accumulated a total corpus of $1,033,478. This corpus at a very low interst rate of 6% will yield an yearly interest of $ 62000. This should suffice her short fall of $22500. She could happily retire at that age.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.