Question One: Saving for retirement (4 marks)

Suppose you work full time and this job is generating a stable income for you. You are planning to start saving for your retirement. You are going to deposit $800 every month into a saving account from now onwards. You found a promotion rate of savings account that pays 1.75% p.a., compounding monthly. Assuming that you are highly committed to this monthly contribution to your savings account and will not withdraw this fund for any type of spending. You are planning to retire in 40 years.

1. How much will you have in this savings account when you retire 40 years later? Show all work clearly. (1 mark)

2. Based on your calculated answer above, analyse whether this saving is sufficient to cover your expenses after you retire. You estimated that you will need at least $500 per week in your retirement days to meet your basic necessities. You anticipate to live at least 30 more years after you retire and the forecasted interest rate during that period will be around 3.25%. (2 marks)

3. If your answer to (b) is yes, explain why that fund will be sufficient to support your daily retirement expenses. Use relevant figures for illustration. If your answer is no, propose one other saving or investment plan that you would undertake to increase the amount of retirement funds. How much more do you need to save every month to meet your retirement needs? [Show all calculations clearly.] (1 mark)