Personal Finance in Retirement
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Your uncle has approached you with a personal finance decision. He tells you
that he is currently eligible for a monthly pension benefit of $5,231
beginning January 2017. Alternatively, he can start drawing early monthly
benefits of $3400 in January 2007 (a 35% reduction for a 10 year early
start).
You tell him you are taking a finance course and can run the numbers to help
him understand the real economics of the two alternatives. He provides the
following additional information.
- Life expectancy? He says 27 years starting Jan. 2007.
- Marginal income tax rate? He says assume 28%.
- Savings rate on the pension amounts? He says assume all the money is
needed for living expenses.
- Inflation? The two of you agree to assume an annual inflation rate of 4%.
Prepare an analysis that compares your uncle's two alternatives, utilizing
the knowledge you have gained from Chapter 9 of the text. Based on the
analysis, what should your uncle do?
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Solution Summary
Response attached as Excel spreadsheet showing the calculations that will help an uncle retire in the most financially intelligent manner.
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