1.8 Personal Financial Planning Problem: Payback Method (Solutions)
Answer #1
X = $38,400
Y = 96 months
Z = 8 years.
Shlomo would have to live beyond 66 + 8 = 74 years for his decision to wait four years to take the benefits to have paid off.
Answer #2
His longevity matters. If he expects to live beyond age 74, he should delay the receipt of his retirement benefits.
Answer #3
If he calculates a discounted payback, he would have to live even longer depending on the discount rate. The higher the discount rate, the longer he would need to live.
Answer #4
An advisor should learn some things about Shlomo’s health and family. Is he likely to live long? Does he wish to provide for his family?