Luke worked for a company for 25 years before becoming disabled. He planned to retire at 65, but is currently 62. His final average salary was $60,000. If his plan offers a benefits rate of 2%, what is his monthly benefit?
Annual Benefit
Years Worked
Expected Retirement Age
Present Age
Rate of Benefits
Final Average Salary
Round to the nearest cent.
Answer (2)
Calculate the annual benefit: A nn u a lB e n e f i t = Y e a rs W or k e d × F ina l A v er a g e S a l a ry × B e n e f i t s R a t e = 25 × $60 , 000 × 0.02 = $30 , 000 .
Calculate the monthly benefit by dividing the annual benefit by 12: M o n t h l y B e n e f i t = 12 A nn u a lB e n e f i t = 12 $30 , 000 = $2500 .
Luke's monthly benefit is $2500 .
Explanation
Calculate the annual benefit First, we need to calculate Luke's annual benefit. The annual benefit is calculated by multiplying the number of years Luke worked, his final average salary, and the benefits rate.
Compute annual benefit Luke worked for 25 years, his final average salary was $60,000, and the benefits rate is 2% (or 0.02). So, the annual benefit is: A nn u a lB e n e f i t = 25 × $60 , 000 × 0.02 = $30 , 000
Calculate the monthly benefit Next, we need to calculate Luke's monthly benefit. The monthly benefit is calculated by dividing the annual benefit by 12 (since there are 12 months in a year).
Compute monthly benefit So, the monthly benefit is: M o n t h l y B e n e f i t = 12 $30 , 000 = $2500
State the final answer Therefore, Luke's monthly benefit is $2500.
Examples
Understanding pension benefits is crucial for retirement planning. For instance, if you work for a company that offers a pension plan, knowing how your years of service, final salary, and benefits rate affect your monthly income after retirement helps you estimate your future financial security. This calculation is also useful in comparing different job offers with varying benefits packages, allowing you to make informed decisions about your long-term financial well-being. Moreover, understanding these calculations empowers you to plan your savings and investments effectively, ensuring a comfortable retirement.
Luke's monthly benefit is calculated as $2,500 based on his 25 years of service, a final average salary of $60,000, and a benefits rate of 2%. To calculate this, we found the annual benefit to be $30,000 and then divided it by 12. Thus, the monthly benefit is $2,500.
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