Question

You have a client age 63, Tom Sharp, who recently retired and has a nest egg of 2 million USD. Tom is considering purchase of an annuity to provide him with a lifetime of income. Tom approaches you and asks if he should purchase an annuity. What further information would you need from Tom to help you better evaluate whether he is a good candidate for a retirement annuity?

Answer 1

Other information required to evaluate weather Tom sharp is a good retirement annuity will be:

1. Interest rate (required rate of return on similar investments) =r
2. The time duration for which he wants income =n

With the help or n, r and the total amount (nest egg of 2 million) which already given we can find Present value of these annuities and can find whether it is a good plan or not.

Other qualitative parameters required can be:

Health of the client

Expected life span of client seeing his current health conditions.