Question 1

Consider the following retirement fund R which involves contributing on your birthdays over the years 2020 to 2060:

An employee aged 25 years plans to contribute 4% of his salary to R starting on his 25th birthday. Then he plans, on his 45th birthday, to up his contribution to 8% of his salary until he is 65. His salary at age 25 is $42,000. An assumption is made that his salary will increase by 2% on average per year. The employer will contribute 3% of the employee's salary to R over the complete time period considered. The growth of this retirement fund R is estimated to be 3.5% per annum. The annual fund R cost has been estimated at $200 per annum.

Calculate how much the employee will have saved for his retirement through this fund when he turns 65.

Mention any assumptions you have made.