We are going to retire at age 65. To do this we wish to havesome money set aside to help us survive the rest of our life. Let’ssuppose that we wish for an annuity to be set up so that we cantake out $6000 every quarter for 15 years (until age 80). Anannuity that you receive money from is sometimes referred to as apayout annuity. Let’s suppose further that this annuity will get 6%interest compounded quarterly.

1. What type of problem is this? {Future Value (FV), PresentValue (PV), Sinking Fund (S), or Amortization(A)}_________________

How much must we invest (at age 65) for this to happen?___________________

Now in order to have this money to invest we needed to startsaving for it a long time before we are 65. Let’s start saving atage 25. (Let’s set up a sinking fund)

2. How much money would we need to put away monthly into anordinary annuity that earns 12% compounded monthly in order to getto our goal? (12% is a somewhat realistic return for a good IRAdepending, of course, on how the stock market does)________________

3. What would be our monthly value if we had started saving atage 35 instead of 25? _______________

How much are we earning???

We will compare what we get out to what we put in.

4. First, how much are we getting out? At age 65 we will startto receive payments until age 80. What is the total of all of thesepayments coming out of the first annuity described in this problem?___________

5. Second calculate the total invested into the sinking funds;Starting at age 25 ___________

Starting at age 35___________

The difference is how much you are earning (in interest) 6.Calculate how much interest is earned starting at age 25._________

Calculate how much interest is earned starting at age35.__________

What is the difference by starting at an earlier age?_______________