# Personal Finance: Class 7 - Annuities

Missouri State University2013-01-25

missouri#state#university#msu#missouristate#college#education#personal#finance#fin 150

3K views|11 years ago

ðŸ’« Short Summary

The video discusses the concept of annuities, future value, and present value calculations, emphasizing the importance of consistent payments, understanding cash flows, and interest rates. It explores scenarios such as saving for college, retirement planning, and paying off mortgages, highlighting the need for strategic financial decisions and goal setting to maximize future value and achieve financial goals.

âœ¨ Highlights

ðŸ“Š Transcript

âœ¦

Understanding Annuities

01:33Annuities involve set payments for a specific period, like mortgages and retirement plans.

Future value of an annuity is the sum of all future cash flows.

For example, depositing $100/year for 3 years at 7% interest yields $321.49.

The key is consistent payments and understanding cash flows to maximize future value.

âœ¦

Importance of Future Value and Annuities in Savings Goals.

05:23Calculation involves determining annual payment needed to save $100,000 for college by age 18 at an 8% interest rate.

Starting early and understanding compounding interest are crucial for reaching savings goals.

Monthly payments result in a lower total amount due to compounding effects.

Regular contributions and interest rate impact should be considered for successful savings.

âœ¦

Explanation of present value of annuities with a 10% discount rate.

09:46Calculation of present value for receiving $100 at the end of each of the next three years, showing decreasing values.

Calculation of present value for a $1,000 annuity received at the end of each year for the next five years.

Demonstration of total present value required for the annuity.

Importance of regular payments at regular intervals for determining payment amount for a house loan.

âœ¦

Understanding annuity payments, interest rates, and loan calculations for effective financial planning.

15:18Calculation of monthly payments and loan repayment duration is explained using a $100,000 house with a 9% interest rate.

Factors like present value and future value are considered in determining the time it takes to pay off a loan.

Making monthly payments instead of annual payments can lead to a faster payoff by reducing the principal sum charged.

The importance of grasping these financial calculations for effective financial planning is stressed in the segment.

âœ¦

Retirement planning strategies for achieving a desired monthly income from age 65 to 85.

21:54The process involves calculating the present value of an annuity at age 65 and determining the required monthly payment to reach a desired future value by age 85.

Factors such as interest rates, time periods, and payment amounts are considered in the calculations to ensure a steady income flow post-retirement.

A structured approach based on time value of money principles can help individuals create a financial plan to support their lifestyle goals in retirement.

âœ¦

Importance of strategic financial planning for retirement.

26:09Saving $140 a month for 40 years to receive $2,000 a month for 20 years in retirement.

Involves calculating present and future values, setting retirement goals, and utilizing annuities.

Discusses mortgages and regular payments for paying off a mortgage.

Emphasizes the significance of planning for retirement through financial decisions and goal setting.

ðŸŽ¥ Related Videos