Suppose you turn 62 in 2020, your full retirement age is 67, and your monthly benefit starting at full retirement age is $1,000. If you start getting benefits early at age 62, you would reduce your monthly benefit 30 percent to account for the longer time you receive benefits. If you choose to delay getting benefits until age 70, you would increase your monthly benefit by 25 percent. Furthermore, suppose that your life expectancy is age 90. In addition, cost of living adjustments (COLA)/inflation are expected to be 2.5% per annum and retirement savings options provide after-tax returns of 7% per annum.

1) What is the present value (at age 62) of future cash flows if you claim retirement at age 67 and live to 90?

[Round the final answer to the nearest cent]

2) What is the present value of future cash flows if you claim retirement early at age 62 and live to 90?

[Round the final answer to the nearest cent]

3) What is the present value (at age 62) of future cash flows if you claim retirement late at age 70 and live to 90?

[Round the final answer to the nearest cent]

4)In present value terms, at what life expectancy age are you indifferent between claiming full retirement benefits at age 67 and collecting discounted benefits at age 62?

[Round the final answer to two decimals]

5) In present value terms, at what life expectancy age are you indifferent between claiming full retirement benefits at age 67 and waiting to collect premium benefits at age 70?

[Round the final answer to two decimals]

6) What is the future value of social security annuity payments earning 7% per annum adjusting for 2.5% inflation if you begin claiming retirement on time at age 67 and live to 90?

[Round the final answer to the nearest cent]

7) What is the future value of social security annuity payments earning 7% per annum adjusting for 2.5% inflation if you begin claiming retirement early at age 62 and live to 90?

[Round the final answer to the nearest cent]

8) What is the future value of social security annuity payments earning 7% per annum adjusting for 2.5% inflation if you begin claiming retirement late at age 70 and live to 90?

[Round the final answer to the nearest cent]

9) In future value terms, at what investment rate of return are you indifferent between claiming full retirement benefits at age 67 and collecting discounted benefits at age 62 (assuming a 7% per annum return adjusting for 2.5% inflation)?

[Enter the final answer in as a percent with two decimal (e.g. 5.55%)]

10) In future value terms, at what investment rate of return are you indifferent between claiming full retirement benefits at age 67 and waiting to collect premium benefits at age 70 (assuming a 7% per annum return adjusting for 2.5% inflation)?

[Enter the final answer in as a percent with two decimal (e.g. 5.55%)]

Answer rating: 100% (QA)

To solve these questions well use the present value PV and future value FV formulas 1 Present Value PV Formula PV FV1 rn Where FV Future Value of cash flows r Interest rate annual n Number of periods ... View the full answer