Question
Suppose you have decided that you want to annuitize a portion of your wealth in ten years. You are trying to decide how to accomplish
Suppose you have decided that you want to annuitize a portion of your wealth in ten years. You are trying to decide how to accomplish this goal. Option 1 to purchase a deferred annuity, where you would make an investment now (i.e., pay a premium), earn investment income in the deferred annuity account over the next 10 years, and then use the original investment along with the income to purchase a life annuity in 10 years. Option 2 is to just make your investments now without purchasing a deferred annuity, and then buy an immediate annuity in 10 years. Suppose that the Supreme Court suddenly decides that all income taxation is unconstitutional, and so all income taxes are abolished forever. Briefly discuss how this would affect your choice between your two options, assuming nothing else changes. (Even if this does not change your choice, discuss how it would change the relative attractiveness of the two options.)
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