Question

In 2022, Iris and her employer each contributed $4,000 to her DBPP which will pay her a pension of 1.5% for every year of service based on the three years of income. Her salary for 2022 was $72,000 and the three best years average $71,000.

a. What is Iris's pension adjustment for 2022 ? Calculate the benefit earned using all 3 methods described in class.
b. How much can she contribute to her RRSP in 2023?
c. If she began collecting her pension in 2023, how much would it be if she had 33 years of service?

Answer 1

This mathematics query addresses how to calculate pension adjustments, RRSP contributions, and the value of a pension based on percentage benefits and years of service, while illustrating the effect of inflation on the future value of money, which requires an understanding of the present value formula in financial mathematics.

Step-by-step explanation:

The subject in question involves understanding the concept of pension adjustments, the contribution room for Registered Retirement Savings Plans (RRSPs), and the calculation of a pension payout based on years of service and percentage benefits, which falls under financial topics in mathematics.

In the example provided for the scenario of Rosalie, we utilize the formula for present value to determine the effect of inflation on future money. To calculate the buying power of Rosalie's $20,000 in today's dollars, considering a 6% annual inflation rate over 16 years, we use the formula for calculating present value:

PV = FV / (1 + r)n

Where PV is present value, FV is future value ($20,000), r is the rate of inflation (6%), and n is the number of years (16).

Using the formula above, we can understand how important it is for retirees to account for inflation when planning for retirement and considering the actual value of their fixed pensions.