Question

Silvia wants to retire at 65 and live on $40,000 a year. How much does she need to save to ensure that her retirement funds last until she is 85?

Select the best answer from the choices provided.
$800,000 because she will need to save for 20 years times $40,000
more than $800,000 because taxes and inflation will increase the value of her savings
less than $800,000 because returns will continue to increase the amount in her savings even after retirement
more than $800,000 because compound return will reduce her savings

Answer 1

She must save 800,000 because that's how much she'll need in those 20 years of retirement. The first choice is correct.

Answer 2

$800,000 because she will need to save for 20 years times $40,000

Explanation:

Silvia wants to retire at 65 and live on $40,000 a year.

She wants to live till 85 and retire at 65 years.

So, number of years to save =
`85 -65= 20`

And she needs to save
`40000*20=800000`

Hence, she must save 800,000.