Question

Wayne and May, who are both in their early 40s, have been happily married for nearly 20 years. While they have been saving some money for their eventual retirement, they know they are well short of what they need. Given their age, what percent of their income should they devote to retirement savings in order to make sure that they reach their retirement income goal?
a) 15% - 25%.
b) 10% - 15%.
c) More than 50%.
d) 25% - 40%.

Answer 1

Answer:

d) 25% - 40%

Explanation:

The level of stable income expected after retirement is based on couple's pattern of consumption and lifestyle. Looking at the U.S. statistics over the past few years, it was found that the average savings rate in the U.S. was around 9-10 percent, indicating that about 90 percent of earned income is spent on consumption.Therefore the couple should be prepared to save about 25 per cent and 40 per cent and meet the target of retirement. In this case, it is presumed that both interest rate and inflation rates do not exist to make the analysis easy.

For instance, if the couple earned a total of $1,00,000 a year and saved say about 40% per year which is $40,000 a year then total couple savings stood at about 80 percent of about $80,000 a year. So the overall savings rate in their retirement life would be 80 per cent, which will serve as a huge corpus.

This should be noted that at this point in time, as after retirement, the couple should cut down on expenses apart from the usual course of expenses which are medical bills and other services that need to be used and come at a cost. It is also very important to save about 25 percent to 40 percent per year to enjoy leisure activities such as travel after retirement.