Retirement Planning & Saving

Question #$1-(5$ Points$)$

Imagine you just finished $30$ years$-$old, earning $$120,000$ pre$-$tax per year paid at the

end of each year. Assume you have no financial asset or explicit liabilities. Your salary

grows $1\%$ per year until you retire at the end of age $65(35$ full years of working$).$ After

retirement, you are entitled to receive a pension paying $50\%$ of your last salary for the

rest of your life $($your pension would remain constant$).$ Assume a valuation rate of $5\%$ and

a planning horizon to age $95(30$ full years of retirement$).$ Your current subsistent

consumption is $$20,000($paid at the end of the year$).$ You expect your subsistent

consumption to grow at rate of $2\%$ until the end of age $95.$ Your goal is to maintain a

constant discretionary consumption $($standard of living$)$ for the rest of your life. You

should pay taxes according to the table below.

Please answer:

Part A: If you put your savings in a TFSA account, what is the highest real & constant

standard of living that you can achieve?

Part B: What fraction of your fifth salary $($salary at the end of age $35)$ should you save to

achieve your financial goal? Do not forget subsistent consumption.

Part C: How much financial capital should you have at age $65,$ so that you can achieve

your financial goal. This is also known as your target "retirement nest egg".Retirement Planning & Saving. Please provided detailed answers along with numeric values