Margaret, a 35-year-old client who earns $70,000 a year, pays 7.65% of her gross pay in Social Security payroll taxes, spends14% on a 30-year mortgage, and saves 8% of her annual gross income. Assume that Margaret wants to maintain her exact pre-retirement lifestyle. Calculate Margaret's wage replacement ratio using the top-down approach (round to the nearest %) and using pre-tax dollars.

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Deanna Romero

3 October, 03:24

Margaret, a 35-year-old client who earns $70,000 a year, pays 7.65% of her gross pay in Social Security payroll taxes, spends14% on a 30-year mortgage, and saves 8% of her annual gross income. Assume that Margaret wants to maintain her exact pre-retirement lifestyle. Calculate Margaret's wage replacement ratio using the top-down approach (round to the nearest %) and using pre-tax dollars.

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Roger Case · Answer 1

84.35%

Explanation:

The computation of Margaret's wage replacement ratio using the top-down approach is shown below:

= 100 - Social Security payroll tax rate - saving rate

= 100 - 7.65% - 8%

= 84.35%

For determining Margaret's wage replacement ratio, we subtract the Social Security payroll tax rate and the saving rate from the percentage value i. e 100 so that the accurate ratio can come.