Your client turned 22 years old today and expects to start working today. Your client expects to be paid once a year, at the end of each year. Your client expects to be paid $50,000 at the end of the first year and for this amount to grow each year by five percent. Your client expects to earn eight percent per year on all investments forever.

Your clients pays a Social Security tax of 6.2% on all income at or below the Social Security taxable income limit. If your clients income is above the threshold then your clients tax is capped, i.e., your client would pay 6.2% of the threshold. The current Social Security taxable income limit is $160,200 and this threshold is expected to grow by 4% each year forever.

Your client can either retire at 62, 65, or 70 years. Once your client retires, this individual expects to receive Social Security disbursements once per year, with the first payment one year after the retirement date, and continuing in annual increments. So, if an individual retires at 62, the first Social Security disbursement would be at 63.

Today, Social Security paid $13,236 to individuals that retired at 62 years of age, $16,809.72 to individuals that retired at 65 years of age, and $23,427.72 to individuals that retired at 70 years of age. In one year, these disbursements will be $13,765.44 to individuals that retired at 62 years of age, $17,482.11 to individuals that retired at 65 years of age, and $24,364.83 to individuals that retired at 70 years of age. After one year, these disbursements are expected to continue to grow each year by four percent forever.

Question 1:

Assume your client plans to retire at age 70 and receives social security payments from age 71 through age 77. What is the average disbursement your client will receive over the seven years of retirement?

		Less than $155,000
		Between $155,000 and $165,000
		Between $165,000 and $170,000
		Between $170,000 and $175,000
		More than $175,000

Question 2:

Assume your client plans to retire at age 70 and receives social security payments from age 71 through age 77. If you discounted these disbursements using the eight percent annual rate of return, what would be the value of these disbursements when your client is 70?

		Less than $1 million
		Between $1 million and $1.5 million
		Between $1.5 million and $2 million
		Between $2 million and $2.5 million
		More than $2.5 million

Question 3:

Assume your client plans to retire at age 70. If your client were able to invest the social security taxes into a retirement account, what would be the value of these deposits after your client deposits the clients last paycheck at age 70 into the account?

		Less than $1 million
		Between $1 million and $1.5 million
		Between $1.5 million and $2 million
		Between $2 million and $2.5 million
		More than $2.5 million