Two retirement options: 1) a lump sum of $150,000; or 2) $14,000 per year for 20...

Transcribed Image Text:

Two retirement options: 1) a lump sum of $150,000; or 2) $14,000 per year for 20 years plus a lump-sum $60,000 at the end of year 20. If she is disciplined to invest the first option at 12%/yr, which has the better outcome? HINT: in this case compare $150,000 now to the Present Value of the second set of inflows discounted at 12% Given: Rate/Yr: 0.12 On Own PV of Option 1 PV of Option 2 PV Yrs PMTs FV PV 150,000 20 14000 20 60000 (annuity - series of pmts) (single future pmt) Total PV (option 2): NOTE: this implies she only withdraws interest earnings and none of the option 1 initial investment ~Alternative Analysis ~ a) ...in which case she will withdraw how much per year? b) ...with how much lump-sum at the end of year 20? Two retirement options: 1) a lump sum of $150,000; or 2) $14,000 per year for 20 years plus a lump-sum $60,000 at the end of year 20. If she is disciplined to invest the first option at 12%/yr, which has the better outcome? HINT: in this case compare $150,000 now to the Present Value of the second set of inflows discounted at 12% Given: Rate/Yr: 0.12 On Own PV of Option 1 PV of Option 2 PV Yrs PMTs FV PV 150,000 20 14000 20 60000 (annuity - series of pmts) (single future pmt) Total PV (option 2): NOTE: this implies she only withdraws interest earnings and none of the option 1 initial investment ~Alternative Analysis ~ a) ...in which case she will withdraw how much per year? b) ...with how much lump-sum at the end of year 20?