A pension fund has accumulated $1 million in a retirement plan for James B. Smit

Question

A pension fund has accumulated $1 million in a retirement plan for James B.
Smith, who retired this month at age 65. If Mr. Smith has a life expectancy of 75
years, what is the minimum size of the annual annuity check the pension plan
will be able to send him each year (assuming that the value of the pension fund’s
investments remains stable)? Should he insist on receiving that size payment
each year? Why or why not? What other kinds of information would be helpful
in analyzing Mr. Smith’s financial situation at retirement?

Explanation / Answer

Since his life expectancy is 75 years...means he is going to live about 10 years more...

minimum size of annual annuity check
= $1 million / 10
= $100,000

He should not insist on recieving that size payment each year since he may not live exactly 10 years but it may be more or less. He may live more if his health is ok or less if he suffers from some diseases

The Assets and Liabilities of Mr. Smith would help in analyzing Mr. Smith's financial situation

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