QUESTION 5

You would like to plan for your retirement. You have gathered or assumed the following information:

You just turned 30 years of age, and currently have zero savings.

You plan to work until you turn 50 years old, at which time you would like to retire. During retirement, assume that you will have no sources of income other than what you can earn on the money that you have saved up for retirement.

For the purpose of retirement planning, you assume that you will live for 20 years during your retirement period (that is, you assume that your life span will not exceed 70 years of age).

Your current salary is RM4,000. For simplicity, you will assume that your salary will be increased every 5 years by 40%.

You plan to diligently save 30% of your salary every month. Each month these savings will be put into an investment instrument, at the end of the month, and will earn an annual return of 8%. Assume monthly compounding.

Assume also that throughout your retirement, you will continue to invest your accumulated savings and that it will earn the 8% per annum return. Again, assume monthly compounding. Required: i. How much money would you have accumulated when you retire? ii. How much money would you be able to spend, a month, during your retirement? Assume that you would need the same monthly expenditure amount throughout retirement. For the purpose of calculating this amount, assume that you will spend that monthly amount at the beginning of each month.