Bertha is considering taking an early retirement offered by her employer. She would receive $3,000 per month, indexed for inflation. However, she would no longer be able to use the company's health facilities, and she would be required to pay her hospitalization insurance premiums of $8,000 each year. Bertha and her husband will file a joint return and take the standard deduction. She currently receives a salary of $55,000 a year. If she retires, she will spend approximately $300 less each month for commuting and clothing. Bertha and her husband have other sources of income and are in (and will remain in) the 22% marginal tax bracket. Her income tax for the current year was $8,875. She currently pays Social Security and Medicare taxes of 7.65% on her salary, but her retirement pay would not be subject to this tax. According to Bertha, she and her husband could live well if her after-tax retirement income was at least 50% of her current income. Determine what her disposable income is currently and what it will be if she retires. Then, determine if it will result in an increase or decrease in her disposable income.
Bertha is considering taking an early retirement offered by her employer. She would receive $3,000 per month, indexed for inflation. However, she would no longer be able to use the company's health facilities, and she would be required to pay her hospitalization insurance premiums of $8,000 each year. Bertha and her husband will file a joint return and take the standard deduction. She currently receives a salary of $55,000 a year. If she retires, she will spend approximately $300 less each month for commuting and clothing. Bertha and her husband have other sources of income and are in (and will remain in) the 22% marginal tax bracket. Her income tax for the current year was $8,875. She currently pays Social Security and Medicare taxes of 7.65% on her salary, but her retirement pay would not be subject to this tax. According to Bertha, she and her husband could live well if her after-tax retirement income was at least 50% of her current income. Determine what her disposable income is currently and what it will be if she retires. Then, determine if it will result in an increase or decrease in her disposable income.
Chapter5: Gross Income: Exclusions
Section: Chapter Questions
Problem 43P
Related questions
Question
Transcribed Image Text:Disposable Income
Now
Retired
Salary/retirement
$4
Reduced commuting and clothing costs
$4
Social Security and Medicare tax
Income tax (22%)
Medical insurance
Disposable income associated with
employment
Less: Disposable income associated with
retirement
in disposable
income
%24
%24
%24
%24
%24
%24
%24
%24
%24
%24
%24
%24
%24
%24
Transcribed Image Text:Bertha is considering taking an early retirement offered by her employer. She would receive $3,000 per
month, indexed for inflation. However, she would no longer be able to use the company's health
facilities, and she would be required to pay her hospitalization insurance premiums of $8,000 each
year. Bertha and her husband will file a joint return and take the standard deduction. She currently
receives a salary of $55,000 a year. If she retires, she will spend approximately $300 less each month
for commuting and clothing.
Bertha and her husband have other sources of income and are in (and will remain in) the 22%
marginal tax bracket. Her income tax for the current year was $8,875. She currently pays Social
Security and Medicare taxes of 7.65% on her salary, but her retirement pay would not be subject to
this tax. According to Bertha, she and her husband could live well if her after-tax retirement income
was at least 50% of her current income.
Determine what her disposable income is currently and what it will be if she retires. Then, determine if
it will result in an increase or decrease in her disposable income.
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