Annual Pension Payments Assignment

John, James and Joe are all 35 years old and plan to retire at age 65. They expect to live to 90 years old. Upon retirement they would all like to take immediate annual pension payments from their savings at the start of each year. John and James can access a quoted rate of 9% per year with quarterly compounding whilst Joe can access a quoted rate of 11% per annum with semi-annual compounding.

a) John has a monthly income of $6,000 and monthly expenses of $2350 and saves the remainder at the end of each month. On the day of his retirement he will receive a retirement bonus from his employer totaling $20,000 and will also sell his holiday home for an estimated $150,000. How much money will John have saved upon retirement?

b) What would be John’s annual pension?

c) James does not have a holiday home to sell, and will not be receiving a bonus from his employer upon retirement. However he is able to invest twice as much as John each month. How much later can James start saving if he wants to have the same annual pension as John?

d) Joe also does not have a holiday home to sell, and will not be receiving a bonus from his employer upon retirement. Unfortunately he does not believe he can save any money during the first 5 years. However, he anticipates being able to save $6,000 per month for the subsequent 10 years, and then $8,000 per month until retirement. Comparing Joe with John, who has the biggest annual pension, and by how much?

use a financial calculator to solve. (BAIIplus)

effective interest rate= (1+ r/m)^m/f

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