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Author: bhirs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76421  
Subject: Re: pension plan ? Date: 10/23/2000 11:38 AM
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The Badger wrote:

One way, but necessarily the only, to look at this is as a simple present value problem. For starters, lets assume an interest rate of 8% and you will live to age 85.

$430/month @ age 55: @pv(430*12,.08,30) = $58,090

$950/month @ age 65: @pv(950*12,.08,20) / 1.08^10 = $50,752.

Thus, given the assumptions, the better deal is $430/month @ age 55.

However, if you drop the interest rate assumption to 6%; the two alternatives are essentially identical in present value.

Then, rjm1 wrote:

I think the answer maybe 85 to 88 years but I would plan on 90 to 95.

You also have to take into account your health and family health history.

The monthly amounts are based on a life annuity, so life expectancy is built in. TheBadger pretty much sums it up, that they are assuming roughly a 6% interest rate to make the two equivalent.
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