Question
You have just turned 60 and have decided to retire. You have sufficient retirement savings to get by withouttaking Canada Pension Plan (CPP) benefits, but
You have just turned 60 and have decided to retire. You have sufficient retirement savings to get by withouttaking Canada Pension Plan (CPP) benefits, but you wish to decide between your different CPP options. Youqualify for the maximum benefit of $1134.17 per month if you start taking CPP at age 65. If you start taking CPP benefits before age 65, your pension is reduced by 0.6% of the monthly payment forevery month before age 65 that you receive pension payments. For example, if you take decide to start takingbenefits 2 months before age 65, your monthly benefit is reduced by 2 x 0.6% = 1.2%. So instead of receiving$1134.17 per month, you receive $1134.17 1.2% x 1134.17 = $1120.56 per month, starting at age 64 and 10months.If you delay taking your CPP benefits until after age 65, your monthly income will increase by 0.7% for eachmonth that you delay, up until age 70. For example, if you decide to start taking benefits 2 months after age 65,your monthly benefit is increased by 2 x 0.7% = 1.4%. So you will now receive $1134.17 + 1.4% x 1134.17 =$1147.78The current life expectancy for someone of your age and other characteristics is 85. You decide to plan as if you will die at age 85.
Assume the discount rate is 0.2% per month.
A) What is the amount of your CPP payment if you take benefits immediately (at age 60)? (1 mark)
What is the PV of your CPP payments if you take them immediately? (1 mark)
What is the PV at age 65 of your CPP payments if you begin taking them at age 65? (1 mark)
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