A 65 year-old man is retiring and can take either $50,000 in cash or an ordinary annuity that promises to pay him $6,000 per year for as long as he lives. Which of the following statements is most correct?
a. Because of the time value of money, the man will always be better off taking the $50,000 up front.
b. The higher the interest rate, the more likely the man will prefer the annuity.
c. If the man expects to live at least 9 years, then he will prefer the annuity.
d. If the interest rate is 15% per year, the man will be better off taking the $50,000 up front.
This solution discusses the choices a worker makes for finances after retirement.