Annuities are mostly thought of as a vehicle to save toward retirement, however these types of investments are also helpful when there is a need to make a large purchase in the future, trying to calculate the future value of an investment when making regular deposits, or how much could be paid to you monthly if you have a lump sum of funds. This unit Discussion will involve some calculations involving annuities and reporting of how annuities work.
Saving for retirement or a large purchase, such as a house, can be done by beginning with a small amount per month; as your income increases, the amount you set aside per month can also increase.
Choose a scenario of savings in a retirement plan such as a 401(k) or an annuity. Plan a monthly deposit (you choose the amount, but be realistic) for 5 years into an account that will earn interest at 5%. Find the future value for this account. Calculate the amount of interest earned on this account.
Then, calculate that same monthly investment amount for 30 years. Calculate the future value of the investment after the 30 years. Calculate the amount of interest on this account as well.
Discuss how a small, monthly investment can grow into a substantial amount if you are consistent and do not touch the funds as they grow.