How much must she invest each month in mutual fund to ensure this standard of living? Assume that there is monthly compounding for the mutual fund.
Karen Kushida is 25 years old, and intends to retire at age 65. According to the estimation of life expectancy for
Canadian women, she expects to live for 20 years in retirement. Therefore, Karen needs to save sufficient funds in
the next 40 years to provide for herself for the subsequent 20 years. She plans to make monthly contributions to an
equity-based mutual fund earning 10.5% annually. At retirement, Karen will put her savings into guaranteed
investment certificates (GIC’s), paying 5.5%. Taking Canada Pension Plan income as well as inflation into account,
Karen estimates that she will need a monthly income of $4000 throughout retirement. How much must she invest
each month in mutual fund to ensure this standard of living? Assume that there is monthly compounding for the
mutual fund.
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