Case Study M: The Dilemma of Old Age

Maggie is a 67-year-old woman whose husband has just died. She has a modest savings account and has just received a check for $250,000 from the proceeds on her husbands life insurance policy. Her only other means of income is her social security benefit. She is worried about outliving her money and has been advised by her son that she should purchase an annuity.

Maggie has come to you for advice about annuities.

Critical Thinking Questions:

1.Explain to Maggie what is meant by an annuity and how it basically works.

2.Explain the difference between a life annuity with no refund and a guaranteed-minimum annuity.

3.Explain the difference between a fixed-rate and a variable annuity.

4. What type of annuity would recommend for Maggie?