Thursday, April 04, 2019

Fixed annuity vs life annuity

Here are the assumptions:
a) You have $100,000 at age 65
b) You are in good health
c) You do not need to give any legacy to your children
d) You can buy a 20 year annuity to pay a monthly sum of $600 for 20 years (yield of 4% p.a.). If you die before 20 years, the balance is paid to your estate. If you live beyond 20 years, you get nothing.
e) Alternatively, you can buy a life annuity to provide $600 a month for a lifetime, which could be shorter or longer than 20 years.
f) The average life expectancy for a person at age 65 is 20 years.
Which type of annuity do you choose?

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