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

nism-series-xb-final-year-contribution-nominal-and-future-value[ INVESTMENT ADVISER (LEVEL 2) ]

In Case 1, what is the nominal contribution made towards the retirement corpus in the final pre-retirement year at age 60 (growing at 20% p.a. from Rs. 1,08,000 base), and its future value at retirement?

[ A ]Contribution = Rs. 3,86,984; FV = Rs. 4,17,942

[ B ]Contribution = Rs. 3,22,486; FV = Rs. 3,76,148

[ C ]Contribution = Rs. 5,00,000; FV = Rs. 5,40,000

[ D ]Contribution = Rs. 4,64,380; FV = Rs. 4,64,380[ CORRECT ]

Takeaway

The final pre-retirement year's nominal contribution is Rs. 4,64,380, and since it is made at the very end of Year 8 with zero years left to compound, its future value at retirement equals that same Rs. 4,64,380, so option D is correct.

Derivation

Nominal contribution at age 60 (Year 8) = Rs. 1,08,000 x (1.20)^8 = Rs. 4,64,380.09, rounding to Rs. 4,64,380. Because this contribution occurs exactly at the retirement date, it has zero remaining years to earn the 8% debt yield, so its future value at retirement is identical to its face value — no compounding is applied. This tests the boundary case of the compounding schedule, checking whether candidates correctly recognise that the very last cashflow in a series has a compounding exponent of zero, distinct from every earlier year's contribution which does earn additional growth.

Why the others fail

A — Contribution = Rs. 3,86,984; FV = Rs. 4,17,942

This is the contribution amount at age 59 (Year 7), which does compound for 1 further year to retirement, not the final Year 8 contribution.

B — Contribution = Rs. 3,22,486; FV = Rs. 3,76,148

This is the contribution amount at age 57 (Year 5), several years too early in the stepped-up contribution schedule.

C — Contribution = Rs. 5,00,000; FV = Rs. 5,40,000

This is an arbitrary rounded figure that does not correspond to compounding the Rs. 1,08,000 base at 20% p.a. for 8 years.