Asma Jaqqa started a job at the government. Her salary is $105,000 before tax and at the end of this year and all subsequent years her salary will increase by 2.5%.

The tax on her income is 30%. Each year-end she deposits 10% of her after tax salary into an RRSP. After 20 years she plans to move to part time, and her pay will drop by 50%.

When she drops to 50% pay, her tax rate will drop to 20%. She will continue to work at this capacity for 10 years until she retires. She will continue to save 10% of her after tax salary each year into an RRSP. She expects she will earn 6% p.a. on the RRSP investments.

REQUIRED:

a) How much will she have in her RRSP after 20 years?

b) How much will she have in her RRSP after 30 years?

c) If the inflation rate is 1.5% p.a. for every year, what is the real value of the 30 year RRSP balance, in todays dollars?

d) Explain to Asma, using an example from her case, why she should monitor and use this feedback with her financial plan?