### SS - Investing Money Annuities

#### What is an Annuity?

An annuity is an investment that requires the investor to invest the a given amount at the beginning of each year (time period) for a specific number of years (time periods). Interest is paid at the end of each year (time period) and remain part of the investment.

#### Annuity Example

\$1,000 is invested each year for 4 years and an interest rate of 4% is paid annually.

 Year YearlyInvestment InterestEarned Investment Value at the end of year 1 \$1,000 \$40.00 \$1,040.00 2 1,000 81.60 2,121.60 3 1,000 124.86 3,246.46 4 1,000 169.86 4,416.32

### Exercise: The power of Time

Create a spreadsheet file to contain each of these Scenarios on different sheets.

#### Scenario #1: Invest Now

• assume you are 15 years old and decide to invest \$1,000 at 4% for each of the next 15 years.
• After 15 years you stop investing money, but just let the investment grow until you are 65.

#### Scenario #2: Invest Later

• assume you are 35 years old and decide to invest \$1,000 at 4% until you are 65.

How did that Happen?
• Which scenario has a higher value at age 65? By how much?
• How much would need to invest each year in the other scenario to have the same value at age 65?

#### Scenario #3: Invest Always

• assume you are 15 years old and decide to invest \$1,000 at 4% until you are 65.
Think about how to create this sheet with re-doing everything!
• How much would need to be invested each year in the other two scenario to have the same value at age 65?
• For each scenario, how much would need to be invested each year to have \$1 000 000 at age 65?
• how does the interest rate affect the ending value? increase the interest rate by 2%, what happens?

#### Scenario #4:  TFSA

• The TFSA (Tax Free Savings Account) can be opened when you are 18
• a maximum of \$5,500 can be invested each year
• how much could you have saved if you start at 18? 25? 35?
• assume your return on investment is 6%