Question

Florian plans to retire in 25 years and spend 35 years in retirement. He currently earns $82,500 before-tax annually, which increases annually with the level of inflation. He has determined that he needs 70% of his pre-retirement income for his retirement years. He currently has $282,000 in his RRSP account and $10,000 in a non-registered account. He will earn 5.50% before retirement and during retirement he will readjust his portfolio to be more conservative earning 3.50%. Inflation is 2% and his marginal tax rate is 35%. All payments are at the end of the period unless stated otherwise.    

What is the amount he needs to have saved at retirement?

What is Florian's shortfall?

Florian plans to save monthly. How much does he need to save each month to address his shortfall and reach his retirement goal?

Answer 1

		Number of years to retirement	25
		Inflation rate	2%	0.02
		Current before tax annual income	$82,500
		Current after tax annual income	$53,625	(82000*(1-0.35)
		After tax income before retirement	$87,977	(53625*((1+0.02)^25))
		After tax income after retirement	$61,584	(70%*87977)
	Pmt	Before tax income after retirement	$94,745	(61584/(1-0.35)
	Rate	Inflation adjusted return =(1.035/1.02)-1	0.014705882
	Nper	Number of years of retirement income	35
	PV	Amount he needs to save at retirement	$2,577,575
		(Using PV function of excel)
		Amount of Shortfall:
	Pv	Current Savings=282000+10000	$292,000
	Rate	Interest Rate	5.50%
	Nper	Number of years to retirement	25
	FV	Future value of current savings	$1,113,511
		(Using FV function of excel)
		Amount needed	$2,577,575
		Amount of Shortfall:2577575-1113511	$1,464,065
		Monthly Savings Needed
	Rate	Monthly Interest Rate=(1.055^(1/12))-1	0.4472%
	Nper	Number of months of savings =25*12	300
	Fv	Future Value of savings	$1,464,065
	PMT	Monthly Savings Needed	$2,327
		(Using PMT function of excel)