Jerry Scott has recently accepted a position with a state agency that has a reti

Question

Jerry Scott has recently accepted a position with a state agency that has a retirement pension plan that requires joint contributions by the employee and the employer. Jerry is now ten years from the retirement age of 65 and expects to contribute $400 per year to the plan, which will make him eligible for payments of $1,000 per year for the remainder of his life, beginning at the age of 65. Jerry's retirement plan is optional; therefore, he is considering the alternative to invest annually an amount equal to his $400 per year contribution. If Jerry assumes his investments would earn 8 percent annually, and his life expectancy is 80 years, should he invest in his own plan or should he make contributions to his employer's fund?

Calculate earning for employer's plan and the employee's plan, show calculations. Make a recommmendation with sound reasoning as to which plan to participate in.

Explanation / Answer

Jerry should go for makeing a contributions to his employer's fund because he wil have more profit therein as he wil have to pay a sum of $400 for 15 years & according to his life expectancy, he wil get an amt of $ 1000 pa.

As in case of his own plan, he wil be spending an amt of & 400 pa for 15 yrs. which amt to 4 X 400 = $1600. and he wil get an 8% annually which is quite less than the employer's fund plan.

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