Suppose a male member currently aged 35, entered service at his age of 25, has a current
Question:
Suppose a male member currently aged 35, entered service at his age of 25, has a
current salary of $75, 000 and total past salary of $650, 000. Assume that salaries increase at
the beginning of each of the following years at a rate 2.25% per year. Suppose he retires at
age 65.
(a) Find the projected final 5-year average salary and the career average earnings, respectively,
for this member.
(b) Calculate the projected annual retirement income (30 years from now) based on each of
the following pension formulas:
(i) 65% of the final 5-year average salary;
(ii) 2.5% of career salary.
(c) Calculate the EPV of total retirement benefits in terms of a life annuity payable at the
beginning of each year (without guarantee period) for this member at his retirement date
with pension formulas (i) and (ii) in (b), respectively. Annuity functions are calculated
based on 2001 CSO Mortality Table and i = 5% per annum effective. You are given that
a65 = 11.21147.
(d) Using the EPV of total retirement benefits in terms of a life annuity calculated in (c),
find the level annual pension income (LAPI) if the life annuity comes with a 5-year
guarantee period, for this member at his retirement date with pension formulas (i) and
(ii) in (b), respectively. Annuity functions are calculated based on 2001 CSO Mortality
Table and i = 5% per annum effective. You are given that a70 = 9.64133.
Contemporary Business Mathematics with Canadian Applications
ISBN: 978-0134141084
11th edition
Authors: S. A. Hummelbrunner, Kelly Halliday, Ali R. Hassanlou, K. Suzanne Coombs