Question

You are considering a job that offers a pension of 80% of your highest yearly salary prior to retirement. You expect your highest yearly salary will be $70,000. What amount of savings, earning 5% per year, would you need to save in order to match the income from the pension?

Answer 1

Answer:

1,120,000 dollars

Explanation:

The pension income is 80% out of current salary of 70,000 dollars, therefore 56,000 dollars. For this to be future retirement stream savings must be at a level of 1,120,000 dollars or 56,000/0,05. This strategy would assume 5% return on savings or investments and the lifestyle in retirement equal to pre-retirement period. This strategy would also assume no additional post-retirement income.