Question Details

Annuities for retirement. 
Naomi Dexter is 20 years old and attends Southwest Tennessee Community College. Her Business English instructor asked her to write a report detailing her plans for retirement. Naomi decided she  would like to retire early when she is 50 years old so she can travel around the world. She has a money market account that pays 3% interest annually. She checked the rate on a 10-year certificate of deposit (CD) through her bank and found that it currently pays 6%. She also did a little research and learned that the average long-term return from stock market investments is between 10% and 12%. Now she needs to calculate how much money she will need to deposit each year to accumulate $1 million. 
1.	If Naomi wants to accumulate $1,000,000 by investing money every year into her savings account at 3% for 30 years until retirement, how much does she need to deposit each year?
2.	If she decides to invest in certificates of deposit at 6% interest, how much will she need to deposit annually to accumulate the $1,000,000?
3.	If  Naomi invests in a stock portfolio, her returns for 10 or more years will average 10%-12%. Naomi realizes that the stock market has higher returns because it is a more risky investments than a savings account or a CD. She wants her calculations to be conservative so she decides to use 8% to calculate possible stock market earnings. How much will she need to invest annually to accumulate  $1,000,000 in the stock market?
4.	After looking at the results of her calculations, Naomi has decided to aim for $500,000 savings by the time she retirees. She expects to have a starting salary after college of $25,000 to $35,000 and she has taken into account all of the living expenses that will come out of her salary. What will Naomi- annual deposits need to be to accumulate $500,000 in a CD at 6%.
5.	If Naomi decides that she will invest $3,000 per year in a 6% annuity for the first ten years, 6,000 for the next ten years, and $9,000 for the next ten years. How much will she accumulate? Treat each ten-year period as a separate annuity. After the ten years of an annuity, then it will continue to grow at compound interest for the remaining years of the 30 years. 
Challenge 
Carolyn Ellis is setting up an annuity for her retirement. She can set aside $2,000 at the end of each year for the next 20 years and it will earn 6% annual interest. What lump sum will she need to set aside today at 6% annual interest to have the same retirement fund available 20 years from now? How much more will Carolyn need to invest in periodic payments than she will if she makes a lump sum payment if she intends to accumulate the same retirement balance? 

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