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Money management - Essay Example

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It therefore makes planning for retirement much more difficult. If I receive KD 500,000 when I retire then I have to invest it in some way in order to…
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Money management

Download file to see previous pages... If I invest the KD 500,000 with a life insurance company then I may be able to earn a stable income each year with adjustments for inflation. Based on discussions with my insurance company the following table reflects the amount that I would receive if I invest in an insurance policy that makes adjustments for inflation and pays my estate the balance of my policy at death.
Table 1 in Appendix 1 provides the necessary information. The table shows an initial investment of KD 500,000 and indicates that over a 20 year period and assuming a 3.5% rate of interest and an inflation rate of 3%, I would be able to have an inflation adjusted income of KD 15,000 in year 1 continuing to $26,302 payment in year 20. The table only shows 20 years because I assume that the number of years that I will live after retirement is approximately 20. This policy however, continues as long as I am alive. The balance on the account at year 20 suggests that there will be sufficient funds for me to earn an income many years after year 20. In fact, my principal amount only starts declining in year 12 suggesting that I will be paid out of interest earned on the investment only up to year 11. After year 11 the payments will start affecting my principal. My total receipt up to year 20 would be KD 403045.62 with a balance on the account of KD 443,861.55. This indicates a net return of KD 346,907.17 ((KD 403,045.62 + KD 443,861.55) – KD 500,000).
In the event that I choose to manage the funds personally then I would be able to make earnings at rates between 3 to 7 per cent. This fund would consist of a mixture of bonds and stocks with at least 60% of the funds in stocks. I would use the income generated from the fund n the first year – year 1 as a basis to determine my future income if I am to maintain the same standard of living. I therefore allow for an inflation rate of 3% as with the life insurance option. Table 2 in Appendix 1 provides information on this fund. An average rate of ...Download file to see next pagesRead More
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