Background Information Mr and Mrs Chan are both 35 years old now They want to retire at 60 Current annual income and annual expenses are HK$1,000,000 and HK$800,000 respectively Lump sum pension at retirement is estimated to be HK$1,200,000 Assume their annual expenses (at present value term) after they retired will be 60 of their current level Current resources available HK$500,000 Assume the average inflation rate and after tax investment return will be 3 and 7 per year Estimated life expectancy 90 years old 1 How much additional fund, if applicable, they have to invest per year until they retire so that they have sufficient fund to support retirement Please state all necessary assumptions 2 Now assume that, for some reasons, they are not able to keep regular annual savings but they will inherit a 15 year old residential property from their parents in a few years Are there any alternatives for them to ensure that they will have sufficient funds for retirement

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Question: Background Information : Mr. and Mrs. Chan are both 35 years old now. They want to retire at 60. Current annual income and annual expenses

Background Information :

Mr. and Mrs. Chan are both 35 years old now. They want to retire at 60.
Current annual income and annual expenses are HK$1,000,000 and HK$800,000 respectively.
Lump-sum pension at retirement is estimated to be HK$1,200,000.
Assume their annual expenses (at present value term) after they retired will be 60% of their current level.
Current resources available : HK$500,000.
Assume the average inflation rate and after-tax investment return will be 3% and 7% per year.
Estimated life expectancy : 90 years old.

1. How much additional fund, if applicable, they have to invest per year until they retire so that they have sufficient fund to support retirement ? Please state all necessary assumptions.

2. Now assume that, for some reasons, they are not able to keep regular annual savings but they will inherit a 15-year old residential property from their parents in a few years. Are there any alternatives for them to ensure that they will have sufficient funds for retirement ?

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