Question 6 Retirement Planning

Kenny Wong, 55, plans to retire in ten years when he will be 65. He has $200,000 now and plans to save annually an equal amount for the next ten years. He estimates that he will have $15,000 and $6,000 (both real dollars) per year in CPP and OAS respectively at time of retirement. He will receive a company pension of $25,000 real dollars per year. He wants to spend $65,000 real dollars per year, at the end of each year, from the first year of retirement until age 95. Ignore taxes in this question. The real rate of interest is 3%.

• Round to second decimal place (e.g., 1.23)

Required:

1. What is the annual income shortfall at age 65? (2 marks)

2. What is the amount that he must save annually to meet his post-retirement expenditure? (4 marks)