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Colin Way is age 40 today and plane to retire on his 65th birthday. With future inflation, Colin estimates that he will require around $2,000,000 at age 65 to ensure that he will have a comfortable life in retirement. He believes that he can contribute $3,000 at the end of each month, starting in one months’ time and finishing on his 65th birthday.
i) If the fund to which he contributes earns 6% per annum, compounded monthly (after tax), how much will he have at age 65? Will he have achieved his targeted sum? What is the surplus or the shortfall?
ii) Using the fund balance, Colin then wishes to commence a monthly pension payable by the fund starting one month after his 65th birthday, and ending on his 85th birthday, after which he expects that the fund will be fully expended. If the fund continues to earn the above return of 6% per annum, compounded monthly, how much monthly pension will Colin receive, if the fund balance reduces to zero as planned after the last pension payment on his 85th birthday?
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