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Discounted Cash Flow Techniques

You are advising a friend who has a decision to make regarding Social Security. He is about turn 62 years old, and is eligible for early Social Security benefits. His early benefits would amount to $677 each month. However, he knows that if he waits until he is 65, his monthly benefits would be $875 a month. According to the actuarial tables, he is expected to live until his 82nd birthday. He cannot decide if he should take early benefits or wait until he is 65. If his opportunity cost on the Social Security benefits is 8 percent, how would you advise him on this decision? Please ignore taxes and assume your friend is interested only in the expected value of his Social Security payments.

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Discounted Cash Flow Techniques

You are advising a friend who has a decision to make regarding Social Security. He is about turn 62 years old, and is eligible for early Social Security benefits. His early benefits would amount to $677 each month.

However, he knows that if he waits until he is 65, his monthly benefits would be $875 a month. According to the actuarial tables, he is expected to live ...

Solution Summary

This solution is comprised of a detailed explanation to answer if his opportunity cost on the Social Security benefits is 8 percent, how would you advise him on this decision.

$2.19