Susan Bowen, who just turned 55, is employed as an administrative assistant for the Xcon Corporation, where she has worked for the past 20 years. She is in good health, lives alone, and has two grown children. A few months ago her husband died, leaving her with only their home and the proceeds from a $150,000 life insurance policy. After she paid medical and funeral expenses, $120,000 of the life insurance proceeds remained. In addition to the life insurance proceeds, Susan has $75,000 in a savings account, which she had accumulated over the past 10 years. Recognizing that she is within 10 years of retirement, Susan wishes to invest her limited resources so she will be able to live comfortably once she retires.
Susan is quite superstitious. After consulting with a number of psychics and studying her family tree, she is certain she will not live past 80. She plans to retire at either 62 or 65, whichever will allow her to meet her long-run financial goals. After talking with a number of knowledgeable individuals—including, of course, the psychics—Susan estimates she needs an income of $85,000 per year before taxes in retirement. That income must last 18 years if she retires at age 62 or 15 years if she retires when she is 65. As part of her financial plan, Susan intends to sell her home at retirement and rent an apartment. She has estimated that she will net $225,000 if she sells the house when she is 62 and $255,000 if she sells it when she is 65. Susan has no financial dependents and is not concerned about leaving a sizable estate to her heirs.
If Susan retires at 62, Social Security and an employer-sponsored pension plan combined will pay her $2,600 per month ($31,200 annually); if she retires when she is 65, her total retirement income will be $3,200 per month ($38,400 annually). Susan has already decided that when she retires she will spend all of her savings to buy an annuity that will provide a stream of annual income that will last until her 80th birthday. If Susan retires and buys an annuity at age 62, for each $1,000 that she puts into the annuity she will receive an annual $79 payment for the subsequent 18 years. If she waits until age 65 to retire, each $1,000 spent on the annuity will produce an annual payment of $89.94 for the 15 years.
Susan plans to place any funds currently available into a savings account paying 3% compounded annually until retirement. She does not expect to be able to save or invest any additional funds between now and retirement. Each dollar that Susan invests today will grow to $1.23 by age 62 or to $1.34 by age 65.

Questions
a. Assume that Susan places currently available funds in the savings account. Determine the amount of money she will have available at retirement once she sells her house if she retires at (1) age 62 and (2) age 65.
b. Using the results from item a, determine the level of annual income that will be provided to Susan through purchase of an annuity at (1) age 62 and (2) age 65.
c. With the results found in the preceding questions, determine the total annual retirement income Susan will have if she retires at (1) age 62 and (2) age 65.
d. From your findings, do you think Susan will be able to achieve her long-run financial goal by retiring at (1) age 62 or (2) age 65? Explain.
e. Evaluate Susan’s investment plan in terms of her use of a savings account and an annuity rather than other investments. Comment on the risk and return characteristics of her plan. What recommendations might you offer Susan? Be specific.