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6.4 Savings & Retirement Plans

6.4 Savings & Retirement Plans
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  • Math Help

    In Example 5, a spreadsheet was used to estimate how much you can withdraw from a retirement plan. There are also many websites that offer retirement income calculators such as Ameriprise Financial, EstimatePension.com, and Money-Zine.com.

  • Consumer Suggestion

    It’s never too early to start planning for retirement. As the cost of living increases each year, you will need to have more money set aside for the future. How do you know how much to save? Use the Retirement Calculator from the American Association of Retired Persons website to find out.

    You can also talk to a financial advisor about setting up a retirement account based on your needs and your preferences. They offer other financial advice including protecting yourself with critical illness insurance and life insurance.

  • Checkpoint Solution
    1. A spreadsheet showing this plan is shown below.

      The balance will run out during the 299th month. This plan would last you almost 25 years, or until you're 93 years old.

    2. A spreadsheet showing this plan is shown below.

      The balance will run out during the 329th month. This plan will last you about years, or until you're 95 years old.

    3. A spreadsheet showing this plan is shown below.

      The balance will run out during the 183rd month. This plan will last you a little over 15 years, or until you're 83 years old.

    Sample answer:

    I would choose option A. It pays a sufficient amount and would allow me to live to be 93 which is about 10 years longer than my life expectancy would be. If I was getting pretty old and was still in good health I would consider reducing my withdrawals so the account would last longer. If I had the option, instead of one of these retirement plans I would choose one that allowed for increasing withdrawals to account for inflation.

  • Comments (1)

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    system user
    Ron Larson (author)6 years ago |
    A decreasing annuity reminds me of the saying "2 steps forward, 3 steps backward". Each month you withdraw more from the balance than what you earned that month in interest. Eventually, the balance is depleted.
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