Question

Ruby is 25 and has a good job at a biotechnology company. She currently has $11,400 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 9 percent, and she plans to leave it untouched until she retires at age 65. Ruby estimates that she will need $875,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $20,000 a year (she expects that Social Security will pay her an additional $15,000 a year).How much will Ruby's IRA be worth when she needs to start withdrawing money from it when she retires?

Answer 1

Answer:

$ 358,063

Explanation:

Calculation for the amount that Ruby's IRA will be worth when she needs to start withdrawing money from it when she retires.

Ruby's IRA worth when she retires at age of 65

First step

Using this formula to find how many years until Ruby retires

Time period= Retired age (-) current age

Let plug in the formula

65-25=40 years

Second step is to find the future value of IRA when she retires

Using this formula

Future value of IRA when she retires

= Present value(1+r)t

Let plug in the formula

$ 11,400 (1+0.09) ^40

=$11,400 (1.09) ^40

=$ 11,400 (31.409)

= $ 358,063

Therefore the amout that Ruby's IRA will be worth when she needs to start withdrawing money from it when she retires will be $358,063