Usman 21 years old works at Noman Power Systems. His current salary is $50,000, which is expected
Question:
Usman 21 years old works at Noman Power Systems. His current salary is $50,000, which is expected to increase at 5% p.a. for the next 5 years (yrs. 22-26 inclusive). After that he will be promoted to the position of section head and his salary will jump by 20% (yr. 27). Thereafter he expects pay raises of 3% p.a. until he retires. He will save 10% of his salary for 24 years until his mortgage loan is paid off. After that he will save 20% per year until he retires. All his savings will be inside RRSP. His after tax rate of return is 4.9% p.a. His marginal tax rate is 30%. All savings are at the end of the year.
a. How much will he have saved by age 45.
b. If he retires at age 65, he will need to have saved $4,000,000 for a comfortable retirement. How much more does he need to save each year from age 46 to 65 inclusive, in addition to the 20% of the salary he is already saving, to retire at age 65.
Assume additional saving is an ordinary annuity.
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