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
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 9 of the text. Based on the
analysis, what should your uncle do?
Response attached as Excel spreadsheet showing the calculations that will help an uncle retire in the most financially intelligent manner.