Annuities as a Good Course Example.

Annuities are widely recommended and purchased as a low-risk retirement investment, guaranteeing income for life. As an example, an immediate or a deferred annuity would be purchased for $100,000 at age 62, and then monthly benefits would start at any time until age 85. In these annuities, once monthly income starts it continues until death, but nothing is received if death occurs before income starts. We discuss why and how to include immediate and deferred annuities in a course's early present worth coverage. Now that inflation is again significant, annuities provide a needed example of accounting for inflation through the interest rate, rather than assuming constant value dollars and real interest rates. Like other personal finance examples this prepares students for personal and professional use of engineering economy. It also helps motivate students by using real-life scenarios. Continued use of the annuity example in rate of return, breakeven, uncertainty, and inflation material links topics and extends student understanding. Possible coverage in more advanced courses includes case studies comparing results for different interest rates and different purchase dates, starting ages, and expected death ages. In more advanced courses inflation-adjusted annuities and mortality distributions merit coverage. [ABSTRACT FROM AUTHOR]

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