Rachel, Who Is in the 35% Marginal Tax Bracket, Is

question 112

Essay

Rachel, who is in the 35% marginal tax bracket, is considering purchasing an annuity that will pay her $10,000 per year for the remainder of her life. Her life expectancy is 15 years. The cost of the annuity is $97,120, and the cost is calculated to yield her an expected 6% return on her investment. As an alternative, Rachel could place the $97,120
in a savings account yielding 6% and she could withdraw $10,000 each year for 15 years (reducing the value of the account to zero at the end of 15 years). How might the tax laws applicable to annuities affect Rachel's decision?

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Definitions:

Serotonin

A neurotransmitter that plays a key role in regulating mood, sleep, appetite, and digestion, among other functions.

Acetylcholine

A neurotransmitter involved in many functions including muscle movement and memory.

Cortisol

A steroid hormone produced by the adrenal glands, which is often released in response to stress and has various roles in the body including regulating metabolism.

Aerobic Exercise

Physical exercise that improves oxygen consumption by the body, enhancing cardiovascular health and endurance.