Certified Financial Planner (CFP) Practice Exam · Question
Sarah, 62, is planning her retirement. She currently earns $80,000 annually. She expects her pre-retirement expenses of $60,000 per year to reduce to $45,000 in retirement. Assuming no change in tax rates or investment returns, what is her basic retirement needs replacement ratio?
The replacement ratio is calculated as desired retirement income divided by pre-retirement income. In this case, $45,000 / $80,000 = 0.5625 or 56.25%.
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Question: Sarah, 62, is planning her retirement. She currently earns $80,000 annually. She expects her pre-retirement expenses of $60,000 per year to reduce to $45,000 in retirement. Assuming no change in tax rates or investment returns, what is her basic retirement needs replacement ratio?
Answer options: ✅ 56.25%
- 60.00%
- 75.00%
- 80.00%
Correct answer: 56.25%
Explanation: The replacement ratio is calculated as desired retirement income divided by pre-retirement income. In this case, $45,000 / $80,000 = 0.5625 or 56.25%.
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