Lump sum or annuity?

(Mar 28, 2018)

People are often faced with a decision whether to live off their savings or buy an annuity.  Normally such decisions are made around the retirement ages of 60-65.  However, an interesting counter-example has just been provided by eighteen-year-old Charlie Lagarde, the winner of a lottery in Canada.  She had to decide between taking a C$1million lump sum or an annuity of C$1,000 each week for life.  She opted for the latter, forswearing an opportunity to become an instant millionaire.  But was it the right decision?

We obtained the most recent mortality tables for the population of Quebec and performed some simple calculations of the discounted present value of C$1,000 per week.  The results are shown in Table…

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Tags: annuity, life expectancy

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