You are a Financial Planner. During your interview with your new client Ali Aladdin you found the

Fantastic news! We've Found the answer you've been seeking!

Question:

You are a Financial Planner. During your interview with your new client Ali Aladdin you found the following information:

Ali has just turned 34 and he plans to retire when he is 67 years old.

Ali owns a diversified share portfolio which is valued today at $47,000. It is expected that this portfolio will earn (on average) 7% per annum, compounded annually, in future years.

Ali also has a superannuation account with a balance of $78,000 to which he is currently contributing $1,000 per month, with the next contribution due in one month's time. The superannuation account is expected to continue to earn 8% per annum, compounded monthly. At his retirement, Ali plans to consolidate his financial holdings and use the total funds to purchase a monthly annuity at age 67 to fund his planned lifestyle in retirement.

Ali believes he will need to self-fund his retirement until he reaches the age of 85, at which time the annuity payments will cease. He would like to have $120,000 remaining in the annuity fund, which he can access as required to meet any costs not covered by the Government Age Pension, which he believes he will then be eligible to receive.

a. Calculate the total value of Ali's financial assets when he retires at age 67? Present all calculations to support your answer.

b. If you think after retirement Ali can earn a return of 5% per annum, compounded monthly, on his annuity by using a balanced investment strategy, what will be the monthly pension amount that Ali will receive on his retirement, with payments commencing one month after his 67th birthday, ceasing after last payment on his 85th birthday, and also retaining $120,000 in the annuity fund at age 85? Present all calculations to support your answer.