Question

Ruby is 25 in has a good job at a biotechnology company she currently has $9700 in an IRA, an important part of her retirement nest egg. she believes her IRA will grow at an annual rate of 7% and she plans to leave it untouched un till she retires at age 65 ruby estimates that she will need $816000 in are told her attire mill nes day by the time she is 65 in order to have retirement income of 20000 a year she expects to social security will pay her an additional 15000 a year.
calculate how much will ruby IRA be worth when she needs to start withdrawn money from it when she retires. Use this number to calculate how much money will she have to accumulate in her company's 401K plan over the next 40 years in order to reach higher retirement income goal.

Your answer should be how much money she needs to accumulate over the next 40 years run your answer to the nearest whole number

Answer 1

Part A)

The future value of IRA worth can be calculated with the use of FV (Future Value) function/formula of EXCEL/Financial Calculator. The function/formula for FV is FV(Rate,Nper,PMT,PV) where Rate = Interest Rate, Nper = Period, PMT = Payment and PV = Present Value.

Here, Rate = 7%, Nper = 65 - 25 = 40 years, PMT = 0 and PV = $9,700

Using these values in the above formula for FV, we get,

Future Value of IRA Worth at 65 Years = FV(7%,40,0,9700) = $145,252.24 or $145,252 (answer for Part A)

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Part B)

The total amount of money Ruby will have to accumulate in order to reach higher retirement income goal is determined as below:

Total Amount to be Accumulated Over Next 40 Years = Total Amount Needed - Future Value of IRA Worth at 65 Years = 816,000 - 145,252 = $670,748 (answer for Part B)