Question

Jordan, age 42, currently earns $70,000. Her wage replacement ratio is determined to be 80 percent. She expects that inflation will average 3 percent for her entire life expectancy. She expects to earn 9.5 percent on her investments and retire at age 62, possibly living to age 90. She has sent for and received her Social Security benefit statement, which indicated that her Social Security retirement benefit in today’s dollars adjusted for early retirement is $15,000 per year.

Answer 1

A college-level Mathematics question wherein Jordan is preparing for retirement by calculating the necessary wage replacement ratio considering inflation and expected Social Security benefits to maintain her lifestyle post-retirement.

Step-by-step explanation:

The student's question pertains to preparing for retirement income and understanding the impact of inflation and Social Security benefits. Jordan, who is currently 42 years old, requires a wage replacement ratio of 80 percent in her retirement. Considering an average inflation rate of 3 percent, this will affect the purchasing power of her income and savings over time. Additionally, she expects to receive Social Security benefits, which will cover a portion but not all of her required income.

To compute her future needs accurately and ensure a comfortable retirement lifestyle, it's essential to consider these variables along with her investment return expectations. This scenario highlights the critical balance between saving during working life and preparing for future consumption after retirement by making smart investment choices. Financial advisers often suggest a retirement income of approximately 70% of pre-retirement earnings, hence Jordan aims a bit higher at 80%, because individual needs and lifestyles vary.