At the age of 67, due to circumstances beyond their control, the employee has to withdraw $75 000 from their superannuation account. The employee is then faced with a choice: Put the remaining balance into an interest-bearing account with a guaranteed return of 3.25% per annum; or Delay retirement and continue working for an additional 3 years (i.e. up to the age of 70), but on a part-time 0.4 FTE basis, with the contribution rate locked at 9.5%, no further pay increases, but a guaranteed return of 3.5% compounded quarterly into superannuation. Step to help answer Part 2 4. For the interest-bearing account option, determine how long it would take the account balance to recover from $675 000 to $750 000 assuming the guaranteed return of 3.25% per year. 5. Determine the final superannuation account balance after 3 years if the employee decides to keep working. Does the employees balance recover from the withdrawal made at age 67? 6. Finally, finish with a conclusion summarizing the employees final outcomes - with specific reference to the value you selected in step 2 and the value obtained in step 3. Given the volatility of superannuation returns, do you believe the employee can achieve their savings target? What are the possible implications for the employee if this does not occur?

USING INFORMATION FROM THIS QUESTION (ANSWER IS BELOW): Using Indices and Compounding Interest (15% out of 45%) A 61-year-old employee considers their retirement savings strategy. Based upon the year in which they were born, the employee will be eligible to retire at the age of 67. The employee is aiming to have $750 000 in their superannuation account upon reaching retirement. Task Part 1 Using information given, determine the average rate of return required for the employee to reach this savings target. Useful Information The employees current superannuation balance (at age 61) is $500 000. The employees current annual salary (at age 61, after tax) is $72 000, of which they can contribute between 9.5% and 12% towards superannuation Contributions towards superannuation are themselves taxed at a rate of 15% The employees salary over the next 6 years is predicted to change as follows: At the end of Year 2, a pay increase of 1.5% At the end of Year 4, a pay increase of 2.25% At the end of Year 5, a final pay increase of 0.75% Steps to help answer Part 1 1. Determine the employees salary for each of the six years. 2. Determine the employees superannuation contributions for each of the six years. For this section you must pick your own value between 9.5% and 12% and use this values for all six years. 3. Determine the employees superannuation account balance assuming zero returns on the account balance each year. Then, from there, determine the average annual return in percentage terms - required for the employee to achieve their savings target.

ANSWER

Employee's salary for each of 6 years
Year	Salary	Superannuation fund @ 9.5%
1	72,000.00	6,840.00
2	73,080.00	6,942.60
3	73,080.00	6,942.60
4	74,724.30	7,098.81
5	75,284.73	7,152.05
6	75,284.73	7,152.05
		42,128.11
Employee's current superannuation fund balance			500,000.00
Superannuation fund for next 6 years at zero returns			42,128.11
			542,128.11
Aiming to have in superannuation account			750,000.00
Additional returns required in 6 years			207,871.89
Average return required per year			34,645.32
Average annual return percentage (34645 / 500000)			6.93%