The town of Millbridge has just agreed to pay a pension to the town clerk. The pension will be $40,000 per year for the next 20 years. Dwight Ives, the town manager, has decided that the town should...

The town of Millbridge has just agreed to pay a pension to the town clerk. The pension will be $40,000 per year for the next 20 years. Dwight Ives, the town manager, has decided that the town should put aside enough money today to pay for the entire pension. He has argued that the town will not receive the clerk’s services in the future, so future taxpayers should not have to pay the pension. How much must be put aside, assuming the town earns 6 percent compounded annually? Does this funding approach make sense to you?