Accumulated money at retirement Pension payments Period of saving $500/month 20 30 40 50 60 70 80 On a life-term plan of your retirement, suppose you start saving money when you are 20 years old by depositing $500 at the end of each month in to an IRA account paying 6% compounded monthly until you retire at the age of 60. (40-year period) a. If you choose to receive a single lump sum at retirement, how much money would you get? Accumulated money at retirement Period of saving $500/month 20 30 40 50 60 70 80 b. If you choose to receive pension annuity, the accumulated amount from question a. will be reinvested at the same interest rate, you will be paid with equal payments at the end of each month over the 20-year period (age 60-80). After 20 years, the account balance will be zero. How much would you receive each month? Accumulated money at retirement Pension payments 20 30 40 50 60 70 80 During this period (age60-80), how much money would you receive from the bank in total? How much interest would be earned during this period? c. In the most unfortunate case if you pass away, the account will be closed with remaining balanced transferred to your lawful heir as an inheritance. Suppose you pass away after receiving the pension payments for 15 years (age 60-75), how much money would your heir receive as inheritance? Accumulated money at retirement Hint: calculate principal outstanding for the remaining payments Pension payments Period of saving $500/month 20 30 40 50 60 70 80