Question

A corporation's pension plan provides a lifetime annual income to its employees upon retirement at age 65. The plan provides 4% for each year of service of the employee's salary upon retirement. Those who retire before 65 have their benefit reduced by 1.4% for each year before 65 that they retire. Russ retires at age 60 with 18 years of service. If his salary upon retirement is $73882, what is his annual pension benefit?

Answer 1

Russ's annual pension benefit is $48218.75.

Step-by-step explanation:

To calculate Russ's annual pension benefit, we need to consider his retirement age, years of service, and his salary upon retirement.

First, we calculate the reduction in benefit due to early retirement. Russ retires at age 60, which is 5 years before the retirement age of 65. So the reduction is 1.4% x 5 = 7%.

Next, we calculate the pension benefit based on years of service. Russ has 18 years of service, so he will receive 4% x 18 = 72% of his salary upon retirement.

Finally, we calculate the annual pension benefit by multiplying his salary upon retirement by the (100% - reduction) and then by the pension benefit percentage: $73882 x (100% - 7%) x 72% = $73882 x 0.93 x 0.72 = $48218.75.