Money Management Finance and Accounting Assignment

Money Management Finance and Accounting - Assignment Example Management of Money: Discussion on the Case: As the case represents, the individual concerned has retired and he has $500,000 saved with him that he can use either for investment or for any other purpose. Either a yearly pension from a life insurance company may prove to be beneficial for him or the individual may manage the wealth himself by investing in a bank. The purpose here is to determine which approach would be more beneficial for the individual after his retirement. Case 1: Yearly Pension from Life Insurance Company: In case of life insurance companies, depending on the age and life expectancy of the individual the insurance company may decide on the pension amount that can be paid to the individual (A Basic Lesson in Immediate Annuities). It is assumed that the individual is a male and his age is 60 years. He has an amount of $50,000 to invest. If he invests the money in a life insurance company, several options of income payment may be available to him. The highest amount that he may receive is $8,455 on a monthly basis on the plan of â€Å"Guarantee Income for a 5-Year Period Certain Only† (Estimated Quotes for a Single Life Annuity). ... Case 2: Managing Own’s Wealth: The individual might even decide to plan and manage his own wealth. If he wants to deposit the amount in a bank and withdraw a certain amount every year, he would have an interest payment for himself that he will receive on the amount he has deposited. A total savings of $500,000 might expect to receive an amount of $25,000 in a year from the portfolio of income. This amount may be received if the annual rates of returns are 7 percent or 8 percent and the individual withdraws, say 5 percent on the amount. Withdrawing an amount of more than 5 percent may create troubles for the principal amount and increase risk for the individual (Generating Income from a $500,000 Portfolio). Thus if an amount of $25,000 can be received through bank investment, then monthly returns are expected to be $2083. Comparison: If the two cases are compared it can be realized that the amount that the individual may receive from a life insurance company is much higher than the amount received from a bank investment. Even the minimum amount that a life insurance company can provide the individual with is $2520 which is more than the amount of $2083 that can be expected from a bank investment on a monthly basis. In addition to the higher amounts that a life insurance company may pay off to its customer, it also provides facilities for the family members of the individual depending on the plan that the individual selects for his investment. Thus, even after his death, his family members may receive the deserved amounts that might prove to be beneficial for their wellbeing. Thus comparing both the investment options available to the individual