Question
John and Mary C. were a middle-aged couple in the midst of planning for their retirement. John was 55 and had decided to put the
John and Mary C. were a middle-aged couple in the midst of planning for their retirement. John was 55 and had decided to put the maximum amount, $2,000, into an IRA account for the next ten years. He was planning to retire at 65. The couple felt they should plan for the following 20 years and were not concerned about planning beyond the age of 85. They wanted the funds that accumulated in the IRA to purchase a 20-year annuity. They had one child, whom they wished to leave or give $50,000 when they reached 85 years old.
Based on the investment opportunities available, Larson felt that a 13% interest rate should be used in evaluating their situation. The couple was concerned about how much of annuity to purchase a retirement that would still leave enough in their investment to grow to $50,000 in 20 years.
For Case 2, how much of an annuity will the couple be able to purchase at retirement, leaving enough in the account to grow to $50,000 in twenty years?
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