Question

If a person, age 25. develops a financial plan, invests 20% of his income in a qualified retirement plan, earns a 7% ROR, and avoids consumer debt, he could achieve financial independence before the retirement age of 65.

A) True
B) False

Answer 1

The statement given is True. By investing 20% of their income in a qualified retirement plan and earning a 7% Rate of Return (ROR), a person can indeed achieve financial independence before the retirement age of 65.

Step-by-step explanation:

The statement given is True. By investing 20% of their income in a qualified retirement plan and earning a 7% Rate of Return (ROR), a person can indeed achieve financial independence before the retirement age of 65. This strategy allows for long-term growth and compounding of investments, which can help accumulate a substantial retirement fund over time.

For example, let's say the person earns $50,000 annually. Investing 20% of their income would equal $10,000. Assuming a 7% ROR, after 40 years (from age 25 to 65), the initial investment of $10,000 would grow to approximately $152,014. This calculation takes into account the compounding effect, which enhances the growth of investments over time.

Thus, by consistently investing a portion of their income and focusing on long-term growth, a person can potentially achieve financial independence before the traditional retirement age of 65.