Question

Lori, a self-employed pediatrician, currently earns $200,000 annually. Lori has been able to save 15%of her annual Schedule C net income. Assume that Lori paid $19,000 in social security taxes, and that she plans to pay off her mortgage at retirement, thereby relieving her of her only debt. Lori presently pays $4, 333.33 per month toward the mortgage. Based on the information provided herein, what do you expect Lori's wage replacement ratio to be at retirement?

41.0%.
49.5%.
59.0%.
67.0%.

Answer 1

49.5%.

Step-by-step explanation:

% of salary towards social security tax = (19000/200,000)*100

= 9.5%

% of savings = 15%

Yearly mortgage payments = 4333.33*12

= 52000

% of mortgage payments = (52000/200,000)*100

= 26%

Replacement ratio = 100% - ( 9.5% + 15% + 26%)

= 49.5%

Therefore, You would expect Lori's wage replacement ratio to be 49.5% at retirement.