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

nism-series-xb-annual-pension-shortfall-year-10-calculation[ INVESTMENT ADVISER (LEVEL 2) ]

In Case 4, Mr. Smart's living expenses (Rs. 4,80,000 base) and leisure expenses (Rs. 1,00,000 base) both grow at 6% inflation, reaching Rs. 8,59,607 and Rs. 1,79,085 respectively at age 70 (Year 10). His pension grows at 3%, reaching Rs. 6,45,080. What is the net annual shortfall in Year 10?

[ A ]Rs. 2,14,527

[ B ]Rs. 3,55,607

[ C ]Rs. 4,85,551

[ D ]Rs. 3,93,612[ CORRECT ]

Takeaway

In Year 10, total outflows of Rs. 10,38,692 (living plus leisure expenses) against a pension of Rs. 6,45,080 leave a net annual shortfall of Rs. 3,93,612, so option D is correct.

Derivation

Total outflows at Year 10 = living expenses (Rs. 8,59,607) + leisure expenses (Rs. 1,79,085) = Rs. 10,38,692. Total inflow = pension (Rs. 6,45,080). Net shortfall = Rs. 10,38,692 - Rs. 6,45,080 = Rs. 3,93,612. This tests whether candidates remember to include both expense categories — living and leisure — in the outflow side before netting against the single pension inflow, since omitting either expense line or picking an adjacent year's figures are the specific errors the wrong options represent.

Why the others fail

A — Rs. 2,14,527

This is the living-expense shortfall alone (Rs. 8,59,607 - Rs. 6,45,080), which omits the Rs. 1,79,085 leisure expense from total outflows.

B — Rs. 3,55,607

This is the net shortfall figure for Year 9 (age 69), one year earlier than the requested Year 10 figure.

C — Rs. 4,85,551

This is the net shortfall figure for Year 11 (age 71), one year later than the requested Year 10 figure.