Annuities as a Good Course Example
- Conference
- Location
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Minneapolis, MN
- Publication Date
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August 23, 2022
- Start Date
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June 26, 2022
- End Date
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June 29, 2022
- Conference Session
- Page Count
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10
- DOI
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10.18260/1-2--41329
- Permanent URL
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https://peer.asee.org/41329
- Download Count
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346
Paper Authors
Neal Lewis University of Nebraska - Lincoln
NEAL A. LEWIS, CPEM, received his Ph.D. in engineering management in 2004 and B.S. in chemical engineering in 1974 from the University of Missouri–Rolla and his MBA in 2000 from the University of New Haven. He has over 25 years of industrial experience at Procter & Gamble and Bayer. He is a faculty member of the online Master of Engineering Management program at the University of Nebraska - Lincoln. Previously, he taught at UMR (now Missouri S&T), Marshall University, University of Bridgeport, University of New Haven, Fairfield University, and Oregon State University. He has over 100 publications and presentations, including 3 books, 4 best paper awards at conferences, the 2009 Grant award (TEE), and the 2005 Eschenbach award (EMJ). Neal is a Fellow and Associate Executive Director of ASEM.
Ted Eschenbach University of Alaska Anchorage
Dr. Ted Eschenbach, PE, is the principal of TGE Consulting, an emeritus professor at the University of Alaska Anchorage, and the Engineering Management Journal’s founding editor emeritus. He is a Fellow of ASEE, ASEM, and IISE. His Ph.D in IE is from Stanford and his MCE from UAA. He has over 300 publications and presentations, including 21 editions of 4 engineering economy titles, 8 best paper awards at conferences, and the 2009 Grant award. In 2016 he received ASEE’s biannual National Engineering Economy Excellence Award.
Abstract
Annuities are widely recommended and purchased as a low-risk retirement investment, guaranteeing income for life. As an example, an immediate or a deferred annuity would be purchased for $100,000 at age 62, and then monthly benefits would start at any time until age 85. In these annuities, once monthly income starts it continues until death, but nothing is received if death occurs before income starts.
We discuss why and how to include immediate and deferred annuities in a course’s early present worth coverage. Now that inflation is again significant, annuities provide a needed example of accounting for inflation through the interest rate, rather than assuming constant value dollars and real interest rates. Like other personal finance examples this prepares students for personal and professional use of engineering economy. It also helps motivate students by using real-life scenarios.
Continued use of the annuity example in rate of return, breakeven, uncertainty, and inflation material links topics and extends student understanding. Possible coverage in more advanced courses includes case studies comparing results for different interest rates and different purchase dates, starting ages, and expected death ages. In more advanced courses inflation-adjusted annuities and mortality distributions merit coverage.
Lewis, N., & Eschenbach, T. (2022, August), Annuities as a Good Course Example Paper presented at 2022 ASEE Annual Conference & Exposition, Minneapolis, MN. 10.18260/1-2--41329
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