You are an investment manager and a client wants to know the lump sum he would need to deposit today to receive a $35,000 supplement retirement annuity for 15 years beginning when he retires in 20 years. Looking at his investment options, you expect an average annual return on the annuity of 8 percent.
How else could you structure his payment so as not to be such a shock to his pocket book? Value that alternative option.
Here's the loaded document, "Below" (see attachment).
The Annuity Payment
The Annual Rate of: 8%
$35,000.00 (The Future Value)
To make the payments easier for the retiree, I would extend the years to 20 since he is not retiring until five years later.
The Annual payment will be $764.83
New Annuity Payment
The same Annual Rate of: 8%.
The solution determines how else could you structure a payment so as not to be such a shock to their pocket book.