Question: You are an investment advisor and one of your clients asked you to construct his financial strategy. Until this moment client has saved on his account 400,000 PLN. He just reached age of 55 years and is planning to work for the next 10 years with a salary of 80,000 PLN a year (paid at the end of a year). The bank account offers 5% pa. rate under yearly capitalization. Client will transfer all of currently held money to the savings account and all of the required salary immediately after it is received. After entering the retirement bank on behalf of the client will transfer all money from the savings account to retirement account (this account does offer 2% pa. under annual capitalization).

a. After going into retirement (after 10 years) client would like to be able to withdraw from his retirement account 60,000 PLN at the beginning of each year (starting from the day of entering retirement). Actuary states that client will die at the age of 90 (on birthday on 1st of January). How much should client accumulate on his savings account before retirement to be able to do so?

b. What part of his salary should client save each following year on the deposit with interest capitalized at the end of each year to be able to make such retirement plan possible?