Reference no: EM132638477

When Tim retires at age 67, he wishes to withdraw all his superannuation as a lump sum and use that to invest in an annuity that pays him $60,000 each year for 16 years. This $60,000 income comprises of part principal draw down on the lump sum he invested and part interest he earns from the return on his lump sum. Tim can earn a 4% p.a. return on his lump sum investment. By the final year, he will have drawn down his initial investment to 0. Based on these terms, calculate the lump sum amount of superannuation Tom needs to have at 67, in order to achieve his target payment of $60,000 each year for 16 years.