Question

Neha would retire 30 years from today and she would need ₹ 6,00,000 per year after...

Neha would retire 30 years from today and she would need ₹ 6,00,000 per year after her retirement, with the first retirement funds withdrawn one year from the day she retires. Assume a return of 7% per annum on her retirement funds and if her planning is for 25 years after retirement, Calculate:

a. How much lumpsum she should deposit in her account today so that she has enough funds for retirement?

b. How much she should deposit each year so that she has enough funds for retirement?

Kindly show your workings for ease of understanding, Thank you

Homework Answers

Answer #1

Answer a. Rs 9,18,538.60

b. Rs 74,021.72 per annum

The calculations can be done using the Present Value Annuity Factor (PVAF) and Compound Value Annuity Factor (CVAF) tables.

AMount required after retiremnet = ₹ 6,00,000 per year

No of years for which payment is required = 25 years

Rate of return required = 7%

SO the present value of these annuities at year 30 will be = 6,00,000*PVAF(7%, 25) = 6,00,000*11.6538

= 69,92,150

Now the amount required to be invested now(year 0) to get these annuities = 69,92,150 * PVF (7%,30) =  69,92,150 *0.131367 = Rs 9,18,538.60

b. If annual payment if to be made. Assume Annual Payment = Rs X

Thus X*CVAF(7%,30) = Rs 69,92,150

X* 94.4607863 =  69,92,150 => X = 69,92,150 /   94.4607863 = Rs 74,021.72 per annum

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