What is the expected payment Derrick receives from his annuity over his life expectancy of 15 years?

To determine the expected payment Derrick receives from his annuity over his life expectancy of 15 years, it's essential to understand how annuities work. An annuity provides a series of payments made at equal intervals. The total expected payment over Derrick's life expectancy is calculated by multiplying the annual payment amount by the number of years he is expected to receive those payments.

If the correct answer indicates that he receives $270,000 over 15 years, this suggests that the annual payment amount Derrick receives from the annuity is $18,000 ($270,000 divided by 15 years). This consistent payment reflects the principal invested and the terms of the annuity contract which have been established to ensure a predictable cash flow.

Understanding annuity payouts is crucial for effective tax planning, as the cash flow can impact Derrick's taxable income and financial strategy. Additionally, this example highlights the importance of calculating total expected payouts based on the life expectancy or annuitization period, which helps clients plan their finances throughout retirement.

The significance of the expected payment figure and its duration is essential for anyone assessing their retirement income needs, and knowing the total expected benefit over the life expectancy is a key part of responsible financial planning.