Real economics of the two alternatives


Problem: Your uncle has approached you with a personal finance decision. He tells you that he is currently eligible for a monthly pension benefit of $5,231 beginning January 2017. Alternatively, he can start drawing early monthly benefits of $3400 in January 2007 (a 35% reduction for a 10 year early start).

You tell him you are taking a finance course and can run the numbers to help him understand the real economics of the two alternatives. He provides the following additional information.

- Life expectancy? He says 27 years starting Jan. 2007.

- Marginal income tax rate? He says assume 28%.

- Savings rate on the pension amounts? He says assume all the money is needed for living expenses.

- Inflation? The two of you agree to assume an annual inflation rate of 4%.

Prepare an analysis that compares your uncle's two alternatives, utilizing the knowledge you have gained from Chapter of the text. Based on the analysis, what should your uncle do?

Solution Preview :

Prepared by a verified Expert
Finance Basics: Real economics of the two alternatives
Reference No:- TGS01799348

Now Priced at $25 (50% Discount)

Recommended (96%)

Rated (4.8/5)

2015 ©TutorsGlobe All rights reserved. TutorsGlobe Rated 4.8/5 based on 34139 reviews.