Savings Annuities

Future Value Annuities

How do people save?

• If I buy a $100,000 30-year GIC today that pays 3% compounded annually, how much will the GIC worth when it matures?

How do people save?

• But who as $100,000 just sitting around in their bank account? Very few people

• Most people are incremental savers, a little bit at a time (Which we call an annuity)– $50 off every paycheque, $100 a month, $2500 every

year– If I save $1000 every year and put it under my

mattress, for 5 years, how much will I have saved?

What if I invested it @3%Year Starting

AmountInterest Deposit Ending

Amount1 $0 $0 $1000 $1000

2 $1000 $30 $1000 $2030

3 $2030 $60.90 $1000 $3090.90

4 $3090.90 $92.73 $1000 $4183.63

5 $4183.63 $125.50 $1000 $5309.13

You walk away with an extra $309.13, by investing it, not just sitting on it.

Annuity Formula

• Try to do that for 40 years! A = How much the annuity is worth when it maturesPMT – The Depositr – annual interest ratec - # of compounding periods in a yeart - # of years

Same question w/ formula

A= = Much easier, especially for longer time periods

When should you start savings for Retirement?

• Mr. Millar deposits $100 into an investment account every month that averages 4.2% return, compounded monthly. I plan to retire when I’m 60. How much will I have saved, if started investing when I was:– 20 years old, 25 years old, 30 year olds? 40 years

old?, 50 years old?

The ResultsWhen I start How much my investment will be worth when I’m 60?

20 years old $124,281.17

25 years old $95,373.91

30 years old $71,933.55

40 years old $37,513.49

50 years old $14,881.31

$28,907.26

$23,440.36

$34,420.06

$22,632.18

The answer : Start Investing Now!

The Idiot Friend Question

• We all have a friend or family members who wastes money on a particular vice (Smoking, Drinking, Coffee, Gambling, Cell Phone Usage etc.)1) Calculate how much they(or you) spend on that vice

every month?2) Suppose they quit that vice cold turkey and start to

invest that money every month into an account that earns 2.6% compounded monthly.

How much money could they save if they saved for 20 years?