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

nism-series-xb-net-disposable-savings-after-planned-outflow[ INVESTMENT ADVISER (LEVEL 2) ]

Mr. Z's annual net savings (starting at Rs. 6,00,000 at age 52) grow by 20% annually, reaching Rs. 10,36,800 at age 55. At the end of age 55, he experiences an extraordinary planned outflow of Rs. 5,00,000. What is the net disposable savings available for investment at age 55?

[ A ]Rs. 5,36,800[ CORRECT ]

[ B ]Rs. 7,20,000

[ C ]Rs. 8,64,000

[ D ]Rs. 10,36,800

Takeaway

After the Rs. 5,00,000 planned outflow is deducted from the age-55 gross savings of Rs. 10,36,800, the net disposable savings available for investment is Rs. 5,36,800, so option A is correct.

Derivation

Gross annual savings at age 55 (Year 3) = Rs. 6,00,000 x (1.20)^3 = Rs. 10,36,800, as given. Net disposable savings = Rs. 10,36,800 - Rs. 5,00,000 (planned outflow) = Rs. 5,36,800. The question checks whether a candidate correctly identifies which year's compounded savings figure to use before layering on the one-time outflow, since the wrong options are simply the gross savings at earlier years or the pre-outflow gross figure — a common trap when a case study spans several years of stepped-up cashflows.

Why the others fail

B — Rs. 7,20,000

This is the gross net savings at age 53 (Year 1: Rs. 6,00,000 x 1.20), not the age-55 figure after the planned outflow is deducted.

C — Rs. 8,64,000

This is the gross net savings at age 54 (Year 2: Rs. 7,20,000 x 1.20), one year too early and before the outflow is subtracted.

D — Rs. 10,36,800

This is the gross savings figure for age 55 before deducting the Rs. 5,00,000 planned outflow, so it overstates the actual investible surplus.