Question

Stacy, a self-employed accountant, currently earns $100,000 annually. Stacy has been able to save 18% of her annual Schedule C net income. Assume that Stacy paid $11,000 in Social Security taxes, and that she plans to pay off her mortgage at retirement, thereby relieving her of her only debt. Stacy presently pays $1,500 per month toward the mortgage. Based on the information provided herein, what do you expect Stacy’s wage replacement ratio to be at retirement?

Answer 1

Answer:

Wage Replacement Ratio = $53,000 / $100,000 = 53%

Explanation:

Total Mortgages = $1,500 x 12 = $18,000

                                           Dollar Value               Percentage

Salary                                       $100,000                             100%

Less: Self-Employment Taxes (11,000)                              (11%)

Less: Savings                                 (18,000)                              (18%)

Less: Mortgage Payments         (18,000)                              (18%)

                                               $ 53,000                               53%

Wage Replacement Ratio = $53,000 / $100,000 = 53%