Congratulations,you have just been employed! You now have a choice between a flat benefit at retirement equal to $4,000 times your years of service,or a career average formula of 3.50 percent of your average salary times your years of service. You expect to work 40 years. At what average salary would you be indifferent between the two alternatives?

Question

Quizplus · Accepted Answer

To be indifferent between the two alternatives, the benefits from both must be equal. For the flat benefit, it's $4,000 times 40 years = $160,000. For the career average formula, it's 3.50% of the average salary times 40 years. Setting these equal to each other gives: 0.035 * average salary * 40 = $160,000. Solving for the average salary gives $114,286.

Congratulations,you Have Just Been Employed! You Now Have a Choice