A 65-year-old male can purchase either of the following annuities from a life insurance company for $50,000. A 25-year term annuity will pay $307 at the end of each month. A life annuity will pay $408 at the end of every month until the death of the annuitant. To what age must the man survive for the life annuity to have the greater economic value? Assume that money can earn 6% compounded monthly.

Life Annuity

An insurance product that guarantees regular payments to the annuitant for life, in exchange for an initial investment.

Term Annuity

An insurance product that pays out income over a fixed period or term, not necessarily for life.

Compounded Monthly

This involves the recalculating of interest on a loan or investment by taking into account both the initial principal and the accumulated interest from previous periods, recalculated on a monthly basis.