Beth and Nelson Want to Accumulate a Combined Total of $600,000

question 117

Short Answer

Beth and Nelson want to accumulate a combined total of $600,000 in their RRSPs by the time Beth reaches age 60, which will be 30 years from now. They plan to make equal contributions at the end of every six months for the next 25 years, and then to make no further contributions for the subsequent five years of semi-retirement. For planning purposes, assume that their RRSPs will earn 7% compounded semi-annually for the next 30 years.
a) What should be their combined semi-annual RRSP contributions?
b) What combined monthly amount can they expect if they use the $600,000 in their RRSPs 30 years from now to purchase 25-year ordinary annuities? Assume that the funds used to purchase the annuities will earn 7.2% compounded monthly.

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