You become employed under the terms of a participating pension plan at age 23. Your starting salary
Fantastic news! We've Found the answer you've been seeking!
Question:
You become employed under the terms of a participating pension plan at age 23. Your starting salary is $75,000 per year. 10% of your income is contributed to the plan each month. You can retire at ages 55, 60, 65 or 70. The pension fund's investments earn an average interest rate of 5.4% per annum compounded monthly, while the average rate of inflation is 2.0% per annum. Your expected retirement lifetime at the different retirement ages is as follows:
Age Life expectancy (years past retirement)
55, 28.8.
60, 24.6.
65, 20.8.
70, 17.4.
Assuming that your income rises at a rate of 3.0% per year, once per year, during your career, calculate:
- Make a monthly schedule that shows the value of your pension from today up to age 70 for the "retire at 70" case (the longest you are considering working for).
- What will be the accumulated amount in your pension plan at retirement for the four possible retirement ages?
- Choose a retirement age that suits you (55, 60, 65, or 70). What will be your monthly pension payment ($/month) if you choose a non-indexed pension.
- For the same retirement age, what will be your monthly pension payment in the first month if you choose an indexed (constant dollar) pension? What will the payment be 24 months after retirement?
Related Book For
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
Posted Date: