Neil is 67 years old and about to retire. His life table expectancy is 20 years.

Question

Neil is 67 years old and about to retire. His life table expectancy is 20 years. He has $25,000 in a retirement plan for which there is no lump sum withdrawl option. Neil has 2 children and wants to make sure he recievs all of the $25,000 and that he can leave his other assets to his children, He wants to participate in equity returns. Which is the most suitable for neil?

A) Single life annuity

B)A joint life annuity with children

C)A single life, fixed annuity with a term certain of 20 years

D) A single life variable annuity with a term certain of 20 years

Explanation / Answer

1) Answer (D) A single life variable annuity with a term certain of 20 years

Explanation : First of all it is single life annuity since in a single life annuity it pays more return compared to joint life annuity but however the dependants or children will get nothihg in case of single life annutiy in our case it was given that Neil was going to give his other assets to his children and he wants to use his retirement plan benefit by himself through investing in stock for earning equity returns.

                       Unlike fixed annutiy,a variable annuity has no guaranteed returns because the investor's principal is invested in one or more sub accounts comprised of stocks,bonds and money market instruments. However most variable annuities do offer a sub account that has a fixed rate of interest.In our case since Neil wants to invest in equity stocks it is better for him to choose A variable annuity with a term certain of 20 years.

                       So that ultimately it is better for Neil to choose A single life variable annuity with a term certain of 20 years.

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