Rebeccah Is 65 and Planing to Retire Next Month

question 10

Multiple Choice

Rebeccah is 65 and planing to retire next month. She can select a pension of $1745 monthly guaranteed for the rest of her life, but not indexed for inflation, or take a lump sum of $312 000. Assume she can invest the lump sum at five percent annually and draw the same income as the pension. How long does she need to live in order for the monthly pension to be the better choice?

• A)89
• B)90
• C)92
• D)93

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Definitions:

Income

The income earned, particularly consistently, from employment or investment returns.

Ordinal Utility

A concept in economics that describes how consumers rank different bundles of goods, reflecting preferences in terms of order rather than quantifiable satisfaction.

Cardinal Utility

A concept in economics that assumes utility can be measured in absolute numbers, allowing for quantifiable comparisons between satisfaction levels.

Market Baskets

A set of consumer products or services used to track price changes and inflation over time.