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. 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 5. Assume an interest rate of 4% 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. 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 5. Assume an interest rate of 4%

Explanation / Answer

Answer:

Option 1 : $15600 from age 62 to 85 years. So i = 4% and n = 85-62 = 23

At age of 85 retirement amount = 15600(1+i)n = 15600(1+0.04)23 = 38450

Option 2: $22800 from age 66 to 85. so i = 4% and n = 85-66 = 19

At age of 85 retirement amount = 22800(1+i)n = 22800(1+0.04)19= 48036.16

Option 3: $30000 from age 70 to 85. so i = 4% and n = 85-70 = 15

At age of 85 retirement amount = 30000(1+i)n = 30000(1+0.04)15= 54028.31

So option 3 i.e $ 300000/year at age 70 gives us more return as compared to other two option.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.