You just retired and qualify for your employer’s pension plan which promises to pay you $4,200 per month until you die. Assume you’re 60 years old in good health and estimate that you will live another 30 years. Also assume that you can conservatively earn a 6% return on your investments. Your company offers to buy out your pension where they agree to pay you $725,000 today in lieu of the $4,200 per month until you die.

a)What is the value of your pension benefit based on the assumptions above?

b)Do you take the buyout? Why or why not?

c)Identify three key issues (financial & non-financial) that you would need to consider when making the decision as to whether-or-not to take the buyout.