In the United States, we pay into a retirement system called Social Security. A

Question

In the United States, we pay into a retirement system called Social Security. A portion of our wage earnings, matched by a portion paid by our employer is put into a trust fund for our retirement. You are able to chose when to receive your monthly payments, but the longer you wait, the more money your receive.   Assuming the following facts, which option gets you more money.show working in excel.

Assumpitions

1. You are 62 years old now and will live to 85

.2. All amounts are yearly totals.

3. You can collect either:    

   $15,600/year at age 62      

   $22,800/year at age 66     

   $30,000/year at age 70

4 . Assume an interest rate of 4%

Explanation / Answer

Calculating the present value of future cash receipts at the given discount rate of 4%:

$15,600/year at age 62  

$22,800/year at age 66

$30,000/year at age 70

Second option $22,800/year at age 66 gives more money

Year 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 Receipt 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 15600 Discount factor 1 0.961538 0.924556 0.888996 0.854804 0.821927 0.790315 0.759918 0.73069 0.702587 0.675564 0.649581 0.624597 0.600574 0.577475 0.555265 0.533908 0.513373 0.493628 0.474642 0.456387 0.438834 0.421955 0.405726 Present value 15600 15000 14423.08 13868.34 13334.95 12822.06 12328.91 11854.72 11398.77 10960.35 10538.8 10133.46 9743.714 9368.956 9008.611 8662.126 8328.968 8008.623 7700.599 7404.422 7119.636 6845.804 6582.504 6329.331 Total present value 2,47,366.73

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