Jeff Smith, age 40, is the manager of a national, publicly funded soccer team in Australia. Smith has a one-year employment contract that has been renewed for several years. He is confident that he can maintain this job, or a similar managing position, until his planned retirement at age 55. Smith is divorced and the father of two teenage children. He wants to find a dedicated trust to provide for his children’s need until they reach age 25. He will need AUD 25,000 within the next few months to find the trust.

Smith’s tax rate is 30%. Other than a small cash reserves, he holds all of his investment assets in a tax-exempt account with a current value of AUD 900,000. Contributions to this account are made after tax. Withdrawals are tax-free, without penalty. Smith saves AUD 25,000 of his after-tax income every year, and plan to continue doing so until retirement. His next contribution is due in one year. As part of his normal expenses, Smith annually provides approximately AUD 30,000 of support to local youth sporting leagues.

When Smith retires in 15 year, he plans to purchase a 25-year annuity that pays AUD 100,000 after tax annually. He will need AUD 1,600,000 at retirement to fund the annuity. Smith expects the annual payout to be sufficient to meet all his needs on an inflation-adjusted basis. He does not plan to leave any estate at his death.

Calculate the required annual return that would enable Smith to purchase the retirement annuity at age 55. Assume all cash flows occur at the end of each period.