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Important Questions for CFP – Retirement Planning

Posted by Prashant Shah on July 24, 2017

Your client starts investing for his retirement goal starting at age 45 years. On 55, todays, he has accumulated 35 Lakh, which he finds insufficient on maturing age 60 if he withdraws 5 lakh p.a. inflation adjustment from his accumulated corpus for 30 years post retirement if the corpus is invested at 7.5% p.a. with inflation expectation of 5.5% p.a. If prior to retirement the growth rate of 9.5% is considered for investing already accumulation fund and fresh annual investment of 3.5 lakh. You estimate the period of delayed retirement beyond.

  1. 4 years 4 month
  2. 3 years
  3. 6 years 6 month
  4. 4 years

 

A buys second house at 60 lakh. Available loan is 40 lakh for 15 year at 9.5% rate. He liquidates his portfolio towards down payment stamp duty and furnishings. He has 5 lakh cash in hand at present. He is expected to save annually save 2 lakh. He would rent out new house at a rent of 25000 p.m. He will invest remaining cash in hand along with quarterly saving and rent received net of 20% maintenance charge on a quarterly basis beginning a quarter from now. Considering 8% p.a. growth in investment and real estate prices. What would be his net worth five years from now?

  1. 90 L
  2. 82 L
  3. 93 L
  4. 107 L

 

A professional just retired has accumulated Rs. 52 lakh. He invests this corpus in an investment instrument giving return of 8% p.a. His current annual household expenses are Rs. 6.6 lakh, escalating at inflation of 6% p.a. He would rent out his other fixed property at an expected annual rent of Rs. 2.40 lakh, the rentals increasing at 6% p.a. The balance expenses are met by withdrawing from the invested corpus. The commercial property, currently valued at Rs. 60 lakh, is expected to appreciate at 8% p.a. He expects to sell the property after 15 years to create a fresh corpus for his living expenses. How long the total funds available are expected to last after 15 years?

  1. 14 years 11 month
  2. 14 years 4 month
  3. 12 years 7 month
  4. 13 years 2 month

31 Responses to “Important Questions for CFP – Retirement Planning”

  1. A said

    Your client starts investing for his retirement goal starting at age 45 years. On 55, todays, he has accumulated 35 Lakh, which he finds insufficient on maturing age 60 if he withdraws 5 lakh p.a. inflation adjustment from his accumulated corpus for 30 years post retirement if the corpus is invested at 7.5% p.a. with inflation expectation of 5.5% p.a. If prior to retirement the growth rate of 9.5% is considered for investing already accumulation fund and fresh annual investment of 3.5 lakh. You estimate the period of delayed retirement beyond.

    Hi! please can you show the solution to this question I’m getting the answer to be 6 years.

  2. M.Nandagopal said

    A buys second house at 60 lakh. Available loan is 40 lakh for 15 year at 9.5% rate. He liquidates his portfolio towards down payment stamp duty and furnishings. He has 5 lakh cash in hand at present. He is expected to save annually save 2 lakh. He would rent out new house at a rent of 25000 p.m. He will invest remaining cash in hand along with quarterly saving and rent received net of 20% maintenance charge on a quarterly basis beginning a quarter from now. Considering 8% p.a. growth in investment and real estate prices. What would be his net worth five years from now?

    90 L
    82 L
    93 L
    107 L

    Dear sir,
    Please provide detailed solution to the above problem

    • VISH said

      lets first take investment part ,
      n=5*4
      i=8%
      pv= 5lakh
      pmt= 50k from annual savings + 60k from rent = 1.1lakh
      fv will come 3443792

      outstanding loan after 5 yrs = 3227958

      value of house after 5 yrs = 8815968

      net worth after 5 yrs = (8815968+3443792)-3227958= 9031802 ( approx 90 lakh)

      • Pandurana said

        While the answer of Approx 90 L is correct, i think the set should be ‘0’ instead of ‘1’ as the question states ‘on a quarterly basis beginning a quarter from now’ which is essentially end of quarter and not beginning of quarter
        lets first take investment part ,
        n=5*4
        i=8%
        pv= 5lakh
        pmt= 50k from annual savings + 60k from rent = 1.1lakh
        fv will come 33,92166.10

  3. Soyeb Ali Mullick said

    A professional just retired has accumulated Rs. 52 lakh. He invests this corpus in an investment instrument giving return of 8% p.a. His current annual household expenses are Rs. 6.6 lakh, escalating at inflation of 6% p.a. He would rent out his other fixed property at an expected annual rent of Rs. 2.40 lakh, the rentals increasing at 6% p.a. The balance expenses are met by withdrawing from the invested corpus. The commercial property, currently valued at Rs. 60 lakh, is expected to appreciate at 8% p.a. He expects to sell the property after 15 years to create a fresh corpus for his living expenses. How long the total funds available are expected to last after 15 years?
    14 years 11 month
    14 years 4 month
    12 years 7 month
    13 years 2 month
    Dear sir please provide the solution of above question.

    • lakshay gupta said

      RRR =2/1.06
      PV1(RRR%;15;660000/1.06;0;0)
      PV2(RRR%;15;240000/1.06;0;0)
      PV1-PV2 = 5134603
      5200000-5134603= 65396
      FV1(0.08;15;0;-65396;1)
      FV2(0.08;15;0;-6000000;1)
      FV1+FV2 = 19240464
      FV(0.06;15;0;-660000;0) = 1581728
      =NPER(RRR%;1581728;-19240464;0;1)
      =13.6

  4. shekar said

    A client has 600000 as salary per year and he starts planning for retirement. He saves 10% of his annual salary in a fund, which would yield 8.5% p.a. He would set aside 2% of his salary every year to take strategic advantage and expects a return of 12% pa and the money from such fund is redeemed and invested in the retirement portfolio every 5 years. What is he expected to retire with 15 years from today

    pls explain the calculation

    • Jasbir Singh said

      Salary 600000
      Savings 60000
      Extra Savings 12000
      1st 5 Year
      PMT 60000 12000
      Nper 5 5
      Rate 8.50% 12%
      FV ₹ 385,741.77 ₹ 85,382.27
      Normal Savings Extra-Savings
      2nd 5 Years
      PV=385741.77 + 85382.27=471124.04
      PV ₹ 471,124.04
      PMT 60000 12000
      Nper 5 5
      Rate 8.50% 12%
      FV £1,094,150.58 ₹ 85,382.27
      Normal Savings Extra-Savings
      3rd 5 Years
      PV=1094150.58+85382.27
      PV ₹ 1,179,532.85
      PMT 60000 12000
      Nper 5 5
      Rate 8.50% 12%
      FV ₹ 2,159,354.24 ₹ 85,382.27
      Normal Savings Extra-Savings
      Total expected amount at retirement= 2159354.24+85382.27 = ₹ 2,244,736.51- Answer

  5. Jasbir Singh said

    Salary 600000
    Savings 60000
    Extra Savings 12000
    1st 5 Year
    PMT 60000 12000
    Nper 5 5
    Rate 8.50% 12%
    FV ₹ 385,741.77 ₹ 85,382.27
    Normal Savings Extra-Savings
    2nd 5 Years
    PV=385741.77 + 85382.27=471124.04
    PV ₹ 471,124.04
    PMT 60000 12000
    Nper 5 5
    Rate 8.50% 12%
    FV £1,094,150.58 ₹ 85,382.27
    Normal Savings Extra-Savings
    3rd 5 Years
    PV=1094150.58+85382.27
    PV ₹ 1,179,532.85
    PMT 60000 12000
    Nper 5 5
    Rate 8.50% 12%
    FV ₹ 2,159,354.24 ₹ 85,382.27
    Normal Savings Extra-Savings
    Total expected amount at retirement= 2159354.24+85382.27 = ₹ 2,244,736.51- Answer

  6. Vaibhavi Shah said

    Hello sir,

    Can you please help me with the below question?

    Ravi and Anita want to invest Rs. 20,000 p.m. jointly. Starting from today, Ravi wants to invest this amount into an investment product, which doubles the investment amount in 8 year 7 months. They want to invest Rs. 20,000 in this product every month till a month before the first maturity receipt of their investment. The maturity amount of such investment product shall be reinvested in a balanced Mutual fund scheme generating 0.75% return per month. Ravi wants to know the accumulated amount of funds at the time of last maturity receipt of invest product with them to fund her daughter’s marriage. According to you the same is

    a) Rs. 63,14,378
    b) Rs. 62,27,373
    c) Rs. 61,81,015
    d) Rs. 61,41,015

  7. Vaibhavi Viren Shah said

    Can anybody help me solve this?
    Shahrukh aged 42 years, life expectancy 70 years, is software engineer. You suggest him to accumulate retirement corpus by investing Rs. 50,000 in first year, and increasing at the rate of 6% p.a. in a Pension plan annually till a year prior to his retirement. The pension plan gives monthly pension till his life time in annuity due mode, immediately after the retirement age of 60 years. Assume the pension plan yield 10% p.a. pre-retirement and 8% p.a. post retirement. Shahrukh wants to know from you, what will be monthly amount he would receive from that pension plan. (Assume that he starts investing in the Pension Plan with immediate effect. Ignore taxes and charges) Assume rate of inflation is 6%.
    A) Rs. 44,840
    B) Rs. 44,300
    C) Rs. 40,276
    D) Rs. 50,600

    • Manish said

      Dear Vaibhavi,

      Here is the solution,

      1.)Find the future value of pension investment growing at the rate of 6% after 18 years(42-60)

      Use formula of future value of growing annuity if investment are growing at constant rate(begin mode)

      fv= A*(1+r)*((1+r)^n-(1+g)^n)/(r-g)

      =50000*1.10*((1+0.10)^18-(1+0.06)^18)/(0.10-0.06)

      =Rs 3720169

      2.)Find the monthly pension amt after retirement

      pv= -3720169
      nper=10*12
      nominal pension rate=7.72%/12(you have to convert pension rate of 8% into nominal rate in case of montly/semi annually/quarterly withdrawl)
      pmt=? 44300

      Regards

      Manish

      • Vaibhavi Viren Shah said

        It would be really helpful if you could help me with the below questions as I am appearing for the paper tomorrow.

  8. Vaibhavi Viren Shah said

    Thank you so much Manish.

    Can you help me with this one too?

    Retirement age of the individual
    60
    Life expectancy of the individual
    80
    A deferred annuity pension plan offers optional one-third commutation on the date of vesting and life
    certain level Annuity. The level annuity from uncommuted amount is Rs. 60,000 per month.
    The vesting sum of Rs. 1.5 crore is Estimated on retirement of the individual.
    Goal: If the individual opts to commute one-third of the expected vested amount and settles for life annuity
    from the remaining amount, at what rate of return the commuted amount shall be invested to yield a
    total income of Rs. 90,000 per month till he survives?

    • Manish said

      Dear vaibhavi,

      Vesting amount is Rs 1 crore 50 lakhs

      1/3rd commuted pension of vesting amount is Rs 50 LAKHS

      Uncommuted pension is rs 1 crore

      Pension from uncommuted is Rs 60000 per month

      Rs 30000 monthly pension required from commuted investment amt to make the total income of Rs 90000 per month

      Pmt=30000
      Nper=20*12
      pv= -5000000
      Rate= ? 0.326966%

      Annualised yield= =0.326966*12=3.92%

  9. Vaibhavi Viren Shah said

    Also this one please;

    Vishal’s father wants to deposit Rs. 15 lakh in Sr. Citizen Saving Scheme in each of his and his wife’s account. He intends to accumulate this scheme’s interest in Gold ETF which is expected to give an average monthly return of 0.75% per month (net of expense) and liquidate this investment at the time of maturity of Sr. Citizen Scheme. What would be the amount at maturity if he deposits a lump sum amount in Sr. Citizen Saving Scheme today? (Assume rate of Interest on SCSS is 9%)

  10. Vaibhavi Viren Shah said

    An investor who opened his PPF account on 9th January 2011. Today he is 32 years old and as on 31-03-2015 he has Rs. 3.82 lakh in his PPF account. He aspires to retire at age 58 years. You advise him to contribute every year maximum permissible amount towards the end of every financial year in PPF account. The PPF account after its initial maturity would be extended till his retirement with the same discipline of maximum contributions. The rate of interest in PPF is considered to average 7% in the period until his retirement. What amount of corpus would thus be accumulated in his PPF account?
    d) 12519879
    e) 12405060
    f) 13405300

    • Manish said

      Dear Vaibhavi,

      Age of investor at the time of opening of ppf account(9-11-2011) is 28 years.

      Counting of ppf term start from the year following the year of opening of account(i.e from year 2011-12)

      His current age is 32 years as on 31-03-2015(ppf bal on this date:-382000)

      Ppf original expiry date is on 31-03-2026(2025-2026)(Age on this date is 43 years)

      Extension of ppf account till his retirement age of 58 yrs(58-43=15 yrs)

      Total term of ppf is 30 years(Age 28 to 58).From this term 4 years have already passed.Find the value of ppf of remaining 26 years term.

      PV= -382000
      Rate=7%
      Nper=26
      fv=?12519879

  11. Vaibhavi Viren Shah said

    Your client, of age 34 years and aspiring to retire at 60, has Rs. 3.38 lakh in his PPF account as on 31-Mar-2015. The account matures on 31-Mar-2021. You advise him to invest Rs. 37,500 every quarter in the
    five days of April, July, October and January every financial year till the account’s initial maturity, and extend the PPF A/c after initial maturity till his retirement by regularly investing in the same manner. You estimate the corpus thus collected through PPF A/c on his retirement. (Consider the rate of interest in PPF
    for all current and future calculations to be done at 8% p.a.)
    155,40,750
    150,87019
    148,24,560

    • Manish said

      Dear vaibhavi,

      Age of investor at the time of opening the ppf a/c is 26 years(A/c opened in april 2006)

      Counting of ppf term starts from the year of opg of account in this problem(2006-2007)

      His current age is 34 years as on 31-03-2015(ppf bal on this date is 338000)

      ppf original expiry dt is on 31-03-21(2020-21)(age on this date is 40 yrs)

      extension ppf a/c till his retirement age of 60 yrs(60-40=20 yrs)

      Total term of ppf is 35 yrs(15+20).From this term 9 yrs have already passed.Find the value of ppf of remaning term of 26 yrs

      pmt= -37500(quarterly investments)(begin mode)

      nper= 26*4

      nominal rate of 8%:=7.77%/4

      fv=? 15087019

  12. Vaibhavi Viren Shah said

    In case you recommend Mr.Bijoy to put 60% of his money in asset A offering 15% annual return with a standard deviation of 10%,and balance funds in Asset B offering a 9% annual return with standard deviation of 8%, what is the expected return after 1 year and standard deviation of Bijoy’s portfolio? Assume the coefficient of correlation between the returns on assets A and B is 0.50.
    Select one:
    a. 12.60 % and 10.10%
    b. 12.60% and 8.09%
    c. 8.09% and 12.60%
    d. 11.67% and 8.75%

  13. Vaibhavi Viren Shah said

    Kindly let me know the solution of the above problem.

  14. Vaibhavi Viren Shah said

    Two companies, M and N have the following risk and return statistics:

    • Standard deviation (M) = 18%;

    • Standard deviation (N) = 30%

    • Expected Return (M) = 14%; Expected Return (N) = 19%

    • Correlation coefficient = 0.28

    Determine the risk of a portfolio of 25 percent M and 75 percent N.

  15. Vaibhavi Viren Shah said

    Calculate using the following the Equity Risk Premium on the stock of XY Ltd:

    Price of stock at the beginning of year = Rs.115 Price at the end of the year = Rs.129, Risk free rate = 7.5%, Dividend paid during the year = Rs.5

    • VIDHI said

      Hello Vaibhavi, Do you have solution for the same?? this are most likely asked questions..
      please reply if anyone can solve this problem

  16. Vaibhavi Viren Shah said

    It would be really helpful if anybody could help me solve above problems as I am appearing for the paper tomorrow.

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