Question

Ruby is 25 and has a good job at a biotechnology company. She currently has $12,000 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. Ruby estimates that she will need $875,000 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).

Answer 1

Janine's IRA be worth when she needs to start withdrawing money from it when she retires is $260,700.

She have to accumulate $614,300 in her company's 401(k).

Explanation:

Consider the provided information.

Part (A)

Ruby is 25 and has a good job at a biotechnology company. She currently has $12,000 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.

Therefore, PV = $12,000, r=0.08 and N=65-25=40

`FV = PV*(1+r)^N`

Substitute the respective values in the above formula.

`FV = 12000*(1+0.08)^(40)`

`FV =260,700`

Hence, Janine's IRA be worth when she needs to start withdrawing money from it when she retires is $260,700

Part (B)

Her total retirement nest egg is $875,000.

Money will she have to accumulate in her company's 401(k) plan:

$875,000-$260,700=$614,300

She have to accumulate $614,300 in her company's 401(k)