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Problem 3: You are 62 years old today and can take your Social Security payments early or wait until your Full Retirement Age (FRA) of
Problem 3: You are 62 years old today and can take your Social Security payments early or wait until your Full Retirement Age (FRA) of 67. If you start early, your monthly payments will be $1,700. If you wait until age 67, you'll receive monthly payments of $2,400. In either case your payments will start one month from the date at which you choose to start. If the discount rate is 2.8%, and you expect to live until age 84, what choice should you make. Assume no other factors apply to your decision. Hint, you must find the PV of both options AT age 62 to make a decision. 12 8 4 62 67 2.80% $2,400 $1,700 264 204 Number of monthly payments if taken early: Number of monthly payments if taken at FRA PV (at age 62) of payments if taken early: PV (at age 62) of payments if taken at FRA*: Choice: | Start at FRA RE: Module 5 Challenger This is a tricky one. You need a two-stage calculation: 1) Find the PV of the annuity AT age 67 (FRA). But you want to figure out the PV at your current age so that you can compare options today (age 62), so.. 2) Take your result from step 1, treat it as a lump sum, and discount it back from age 67 to age 62 (5 years). You need to do all that in one calculation so, you can use 2 PV functions like =PV( periodic rate, 5,0, PV(of of payments at age 67)) The red is discounting the PV at age 67 back 5 years (67-62) to age 62 The green is calculating the PV of the payments at age 67 Be sure to use periodic rates (r/m). You've already calculated 'n'. Also, be sure to use the higher payment amount. I hope this helps
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