Archive / Investment Adviser (Level 2) / Miscellaneous Aspects of Retirement Planning

nism-series-xb-annual-savings-growth-final-pre-retirement-year[ INVESTMENT ADVISER (LEVEL 2) ]

In Case 1, Mr. Z's annual net savings start at Rs. 6,00,000 at age 52 (Rs. 50,000 pm) and grow by 20% p.a. until age 60 (8 years). What are his projected annual net savings in the final pre-retirement year at age 59 (Year 7)?

[ A ]Rs. 21,49,908[ CORRECT ]

[ B ]Rs. 17,91,590

[ C ]Rs. 25,79,890

[ D ]Rs. 14,92,992

Takeaway

Mr. Z's projected net savings at age 59 (Year 7), compounding at 20% p.a. from the Rs. 6,00,000 base, are Rs. 21,49,908, so option A is correct.

Derivation

Net savings at age 59 (Year 7) = Rs. 6,00,000 x (1.20)^7 = Rs. 6,00,000 x 3.5831808 = Rs. 21,49,908.48, rounding to Rs. 21,49,908. This tests precise year-indexing within a multi-year growth schedule: candidates must correctly map 'age 59' to 'Year 7' (counting from age 52 as Year 0), since the wrong options are simply the same compounding formula applied to adjacent years, a distinction that is easy to get off-by-one on.

Why the others fail

B — Rs. 17,91,590

This is the net savings figure at age 58 (Year 6: Rs. 6,00,000 x 1.20^6), one year short of the requested age-59 figure.

C — Rs. 25,79,890

This is the net savings figure at age 60 (Year 8: Rs. 6,00,000 x 1.20^8), one year beyond the requested final pre-retirement year.

D — Rs. 14,92,992

This is the net savings figure at age 57 (Year 5: Rs. 6,00,000 x 1.20^5), two years short of the requested age-59 figure.