Question
Your parents are about to retire and must make an immediate decision about their retirement options. They seek your advice on what they should do
Your parents are about to retire and must make an immediate decision about their retirement options. They seek your advice on what they should do with their savings.
Retirement Investment Choices:
i. Purchase a fixed annuity contract for $412,950 from the Official Insurance Company which guarantees to pay them $30,000 per year for 30 years, or
ii. Manage their savings themselves which they believe they can earn a minimum of 6% during their expected retirement of 30 years.
a. What is the discount rate that Official Insurance Company is applying to your parents fixed annuity contract?
b. If your parents manage the $412,950 themselves, how much can they afford to withdraw each year?
c. Describe a potential risk and benefit if they:
i) purchase the fixed annuity from Official Insurance
ii) manage the money themselves
d. Which would you recommend to your parents? Why?
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