Simon and Sandra Soh are no different from many young families who are concerned with their finances. In their fact-finding form, they have emphasised the two most important financial goals to you: (1) saving a college fund for their 2 children and (2) having enough retirement fund for themselves.

Retirement planning is also on the top of their mind, and both hope to retire when they reach age 65. Both are aged 40, and earn a combined income of $120,000 per year. They hope to have a retirement income of about $60,000 per year and estimate 20 years in retirement.

Recently, they have received an inheritance of $120,000 and have invested the money in several unit trusts. They also have a total of $85,000 in their CPF accounts currently. The Sohs are relatively conservative investors and believe they can achieve a return of about 6% p.a. during their retirement.

(b) In their retirement planning they expressed that they do not have excess money to plan for retirement. Right now the only investment is the $120,000 in unit trust and the balance of $85,000 in their CPF accounts. Appraise what the value of these investments would be in 25 years, if they can earn an average return of 7% per annum from the unit trust investment and 4% per annum from their balance in the CPF accounts.

(c) After some discussion the Sohs believe they can set aside $5,000 a year for the next 25 years for their retirement plans, compute how much they would be able to accumulate given a 7% rate of return.