Question
You are 62 and planning your retirement. If you retire immediately, then your Social Security benefit is $1,798 per month. If you retire at age
You are 62 and planning your retirement. If you retire immediately, then your Social Security benefit is $1,798 per month. If you retire at age 67 then the benefit is $2,310 per month. If you expect to live to age 90, then when should you retire and start claiming retirement benefits? Since the benefits are certain as long as you live, the appropriate discount rate is the risk free rate. Since we are not incorporating inflation into the benefits we must use a real interest rate. The real risk free rate is 3.5% per annum. Assume that benefits are collected at the end of each month. Express your answer as the difference in the future value of the benefits. That is, subtract the future value of benefits if you retire early from the future value of benefits if you retire later.
(Choose the best response.)
A. You should retire at age 67 because you will have $46,335 more benefits at age 90.
B. You should retire now because you will have $47,490 more benefits at age 90.
C. You should retire now because you will have $46,335 more benefits at age 90.
D. You should retire at age 67 because you will have $47,490 more benefits at age 90.
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