Question

You chose to work beyond the age of 67. Your benefit increases 8% for every year you wait past the age of 67 but there is no increase in benefit beyond age 70. You are retiring at the end of this year, at the age of 72. If your normal monthly retirement benefit would have been $1,000 per month if you retired at 67, which math statement below could you use to roughly calculate your monthly benefit at age 72?
a) $1,000 + $1,000 x .08 x 3 = $1,240
b) $1,000 + $1,000 x .08 x 5 = $1,400
c) $1,000 + $1,000 x .08 x 3 x 12 = $2,880
d) $1,000 + $1,000 x .08 x 5 x 12 = $4,800

Answer 1

Answer: a) $1,000 + $1,000 x .08 x 3 = $1,240

Explanation:

Monthly retirement Benefit at age 67 = $1000

Incremental rate on benefit beyond age 67 = 8%

Incremental rate on benefit beyond age 70 = 0

Period = 70 - 67 = 3years

Estimated monthly benefit at age 72;

Monthly benefit at age 67 + (monthly benefit at age 67) × incremental rate × increment period × 12

$1000 + ($1000 × 0.08 × 3 )

$1000 + $240.00

=$1240

Similarly,

This means monthly rate = 8% / 12 = 0.0066667

Total period = 12 × 3 = 36 months

Total = Principal + (principal × rate × time)

1000 + (1000 × 0.0066667 × 36)

1000 + 240.0012

1,240.0012 = 1240