Question

Jorge is working in health care sector since 25 years with Siemens, he is a loyal and committed
worker started his work with the same organization when he was 22 years old. He started thinking
about his saving plans for the future retirement. Apart from the company retirement gift of
$20,000 he is considering to savings plan by keeping the retirement age of 72 years in his mind.
• Option 1: Deposit $1,000 at the end of each quarter for the first 10 years from now-onwards and. make
no further deposits, but leave the amount accumulated at the end of 10 years for the next years till
retirement
• Option 2: Do nothing for the first 10 years. Then deposit $6,000 at the end of each year till retirement
years.
If deposits or investments earn at an interest rate of 6% compounded quarterly, design an optimal
solution that which of the following option will be suitable based on what he will be able to
accumulate. Represents the calculation in the form of cash flow table shown the total sum deposited
and at the end and start of the year.

Answer 1

As Jorge is working with Siemens from last 25 years and he started at the age of 22. His age must be 47 now. He is thinking to retire when he is 72. Thus, he can invest for 25 more years.

Rate of Interest = 6% compounded quarterly

Option 1:

Deposit $1,000 at the end of each quarter for 10 years

Future value of this quarterly payment after 10 years would be = 1,000 * {[(1 + 0.06)⁴⁰ - 1] / 0.06} = 154,761.96

This amount is further kept in account for 15 more years. Amount after 15 years would be 154,761.96 * [1 + 0.24]^¹⁵ = 3,899,326

Option 2:

You will have 15 years left if you do not anything for 10 years till retirement.

Deposit = $6,000 for 15 years

As quarterly rate of interest is 6%. Annual rate of interest must be 24%

Future value of annuity of 6,000 would be 6,000 * {[(1 + 0.24)^¹⁵ - 1] / 0.24} = 604,890.8

Option 1 gives comparatively very high return at the time of retirement. Thus, it must be chosen.