Your client just turned 75 years old and plans on retiring in 10 years on her 85th birthday.She is saving money today for her retirement and is establishing a retirement account with your office.She would like to withdraw money from her retirement account on her birthday each year until she dies.She would ideally like to withdraw R50,000 on her 85th birthday, and increase her withdrawals 10 percent a year through her 89th birthday (i.e., she would like to withdraw R73,205 on her 89th birthday).She plans to die on her 90th birthday, at which time she would like to leave R200,000 to her descendants.Your client currently has R100,000.You estimate that the money in the retirement account will earn 8 percent a year over the next 15 years.Your client plans to contribute an equal amount of money each year until her retirement.Her first contribution will come in one year; her tenth and final contribution will come in ten years (on her 85th birthday).How much should she contribute each year in order to meet her objectives?

Question

Quizplus · Accepted Answer

The correct answer is A. R12,401.59.The client needs to accumulate R50,000 + R55,000 + R60,500 + R66,550 + R73,205 = R305,255 in her retirement account by her 85th birthday. She currently has R100,000, so she needs to save R205,255 over the next 10 years. If she contributes an equal amount each year, she will need to contribute R205,255 / 10 = R20,525.55 each year. However, her money will earn 8% interest each year, so she will only need to contribute R20,525.55 / 1.08 = R12,401.59 each year.

Your Client Just Turned 75 Years Old and Plans on Retiring