Bobby Brown has just turned 48 years of age and has come to you seeking retirement advice.During your discussion the following information was communicated:

• Bobby wants to retire on his 65^th birthday;
• he currently has $198,000 in his superannuation fund;
• he contributes $800 per fortnight into his super account; and
• the investment returns are 8% p.a.

In addition to the super fund, Bobby has also invested $100,000 today (his 48^th birthday).The investment is in a direct share portfolio which produces average returns of 6% p.a. after tax.The investment returns are paid every 6 months.

When Bobby retires at the age of 65, he will use his super and non-super investments to purchase an ordinary annuity which will provide him with a regular monthly income stream until he reaches life expectancy at 83 years of age.The rate of return for the annuity will be 4% p.a.

Bobby is concerned that he may live beyond life expectancy and wishes to ensure he has a residual value of $150,000 remaining in his annuity when he turns 83.He will use the money to supplement the aged pension.

Task

1. What will be the value of Bobby's financial assets when he retires at age 65?Present all calculations to support your answer.[5 marks]
2. What will be the annual pension amount that Bobby will receive until age 83?Returns are compounded annually at year end. Present all calculations to support your answer.[5 marks]