Stevie Gordon, age 40, is evaluating several supplemental retirement annuity plans offered by her employer. In general,

Question:

Stevie Gordon, age 40, is evaluating several supplemental retirement plans offered by her employer. In general, all the plans call for Stevie to make annual contributions, some of which will be partially matched by the employer. The two plans drawing most of her attention are as follows.
Plan 1 requires $3,000 annual end-of-year contributions by Stevie; the employer will match 20% of Stevie’s contribution each year; and the plan guarantees an 8% overall return.
Plan 2 requires $2,500 annual end-of-year contributions by Stevie; the employer will match 85% of Stevie’s contribution; and the plan guarantees a 6% overall return.

Required
Which option has the higher expected when Stevie reaches age 65? Which option would you recommend to Stevie? Why?

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,... Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...