How much will she get as an annuity monthly payment

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Liz is retiring from the Mccormick and will turn 70 next year. After 39 years of service, her monthly pension is $7,500. She does not qualify for Social Security. Liz has accumulated $700,000 in her thrift savings plan. The government requires that she convert it to an annuity or move it to a IRA. All of the money is pretax and tax can be avoided if it is moved to the IRA.

The amount received form the annuity and the amount received from the IRA will be taxable when received. The annuity is a life annuity and Liz will receive the same amount each month for the rest of her life. When she dies, the annuity ends. When Liz dies, the balance in the IRA, if any, will go to someone that she designates.

The annuity will be calculated based on her life expectancy of 17.5 years after age 70. The current US Treasury long-term bond rate is 3 percent. How much will she get as an annuity monthly payment? Convert the 3% per year rate to a monthly rate and use the PMT function to calculate the monthly payment to Liz.

Reference no: EM132363238

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