Reference no: EM13215807
Samantha O'Reilly has come to your office for a second opinion about her individual long-term disability policy. She was told that her best option for reducing the cost of her policy was to choose a long elimination period. But she has become worried that she will not be able to pay her monthly expenses for the year-long elimination period. She has some savings, but she is afraid that is not enough.
a. If her current annual salary is $43,000, her taxes are $8,000, and she just barely manages to fund her Roth IRA each year with $5,000, how much of an emergency fund would she need to meet only her living expenses?
b. How long would it take her to achieve the emergency fund goal above if she currently has $18,500 saved, invests $300 per month, and earns an annual percentage yield or APY of 4.25% after taxes in her money market mutual fund.
c. If she could reduce her elimination period to nine months for an additional premium of $10 per month, how much would she need to save on a monthly basis in the same money market account to reach her emergency fund goal within 12 months? Could she afford this savings payment if she suspended her IRA contribution for one year?
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