Question

Agnes is 40 years old. She wants to know how much she should be saving each year for retirement. Below are the specifics:

• She wants to retire at 60 and expects to live until she’s 90

• She currently makes $45,000 and expects that to increase each year with inflation (2%). She thinks she will need about 70% of that to live on in retirement.

• She has $40,000 in an RRSP

• Her investments are earning a real rate of 7%

• When she retires she will move her investments into a more conservative portfolio and earn 3% per year.

• She expects that CPP will be about $15,000 per year.

  
  

1. How much will she have to save each year to make up the difference? (Note you will need to have completed the first two parts of this problem to do this one.)

2. Given this information, how much will she have saved when she is 60?

3. How much does she need to have saved at the time she retires?

Answer 1

G11 X =PV(G7, 68,-G9,,1) A B с D E F H 1 1 2 3 4 (66868*0.7) 5 6 Number of years to retire =60-40 Inflation rate=2% Earning in year of retirement=$45000*(1.02120)= Amount Required in first year of retirement RealReturn during retirement =3% Real Return During Retirements Number of years in retirement=(90-60) Amount Requirement in constant dollars Payment at beginning of years Amount required at the time of retirement 20 0.02 $66,868 $46,807 0.03 3% 30 $46,807 7 8 9 Rate Nper Pmt Type PV 10 1 $944,968 11 12

G18 =PMT(G14,615,616,-G17) A B с D E H | 13 14 15 16 Rate Nper Pv FV PMT TOTAL SAVINGS REQUIRED PER YEAR Nominal Return before retirement=7%+2% Number of years of savings Amount of savings available in RRSP Amount required at the time of retirement Additional Savings required per year CPP per Year=$15000 No additional savings needed 9.00% 20 $40,000 $944,968 $14,089 17 18 19 20

G26 X =FV(G22, G23,-G24,-G25) А B с D E F G H 1 13 14 Rate Nper 15 16 Py 9.00% 20 $40,000 $944,968 $14,089 17 FV PMT 18 19 20 21 22 23 24 25 26 27 28 29 TOTAL SAVINGS REQUIRED PER YEAR Nominal Return before retirement=7%+2% Number of years of savings Amount of savings available in RRSP Amount required at the time of retirement Additional Savings required per year CPP per Year=$15000 No additional savings needed Amount she would have saved when she is 60 Nominal Return before retirement=7%+2% Number of years of savings CPP per Year Amount of savings available in RRSP Amount she would have saved when she is 60 Rate Nper Pmt Pv 9% 20 $15,000 $40,000 $991,578 FV