Pays half the cost of the retirement system

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Reference no: EM13721687

An oil company employs a petroleum engineer on his 45th birthday at a salary of $60,000 per year, which is expected to increase by an average of $1,500 at the end of each year until his retirement age of 65. The company’s retirement package pays one-half the average salary over the last three years of the employment. Since vesting is required after 10 years, he may leave the company at that time and begin drawing retirement on his 65th birthday. The company invests its employees’ pension fund at 8% per year, and assumes a life expectancy of 75 years. It pays half the cost of the retirement system. What fraction of this employee’s pay (on an annual basis) must be withheld in order to ensure an adequate fund for his retirement at any time after 10 years?

Reference no: EM13721687

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