When Sheryl graduated from Northeastern University in 2000 and went to work for BAE Systems, she did
Question:
If you stop working and start receiving benefits . . .
At age 62, your payment would be about ...... $1400 per month
At you full retirement age (67 years), your payment
would be about ................ $2000 per month
At age 70, your payment would be about ...... $2480 per month
These numbers represent a reduction of 30% for early retirement (age 62) and an increase of 24% for delayed retirement (age 70). This couple also learned that it is possible for a spouse to take spousal benefits at the time that one of them is at full retirement age. In other words, if Sheryl starts her $2000 benefit at age 67, Brad can receive a benefit equal to 50% of hers. Then, when Brad reaches 70 years of age, he can discontinue spousal benefits and start his own. In the meantime, his benefits will have increased by 24%. Of course, this strategy could be switched with Brad taking his benefits and Sheryl receiving spousal benefits until age 70.
All these options led them to define four alternative plans.
A: Each takes early benefits at age 62 with a 30% reduction to $1400 per month.
B: Each takes full benefits at full retirement age of 67 and receives $2000 per month.
C: Each delays benefits until age 70 with a 24% increase to $2480 per month.
D: One person takes full benefits of $2000 per month at age 67, and the other person receives spousal benefits ($1000 per month at age 67) and switches to delayed benefits of $2480 at age 70. They realize, of course, that the numbers will change over time, based on their respective salaries and number of years of contribution to the social security system by them and by their employers.
Brad and Sheryl are the same age. Brad determined that most of their investments make an average of 6% per year. With this as the interest rate, the analysis for the four alternatives is possible. Sheryl and Brad plan to answer the following questions, but don't have time this week. Can you please help them? (Do the analysis for one person at a time, not the couple, and stop at the age of 85.)
1. How much in total (without the time value of money considered) will each plan A through D pay through age 85?
2. What is the future worth at 6% per year of each plan at age 85?
3. Plot the future worth values for all four plans on one spreadsheet graph.
4. Economically, what is the best combination of plans for Brad and Sheryl, assuming they both live to be 85 years old?
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