An employee who has worked for his firm for 30 years can retire right now and receive a constant annual benefit of $45,000. He has a final pay plan that pays his average salary over his final five years times 2 percent times years of service. He has decided he will keep working five more years but only if by doing so his retirement benefits will grow at 6 percent per year. How much would his expected average salary (to the nearest dollar)have to be over the next five years to keep him working?

Question

Quizplus · Accepted Answer

To achieve a 6% annual growth in retirement benefits, the employee's final pay plan must yield a benefit of $60,312 after five years. Using the formula: Benefit = Average Salary * 2% * Years of Service, we solve for the average salary: $60,312 = Average Salary * 2% * 35. Solving for the average salary gives approximately $86,029.

An Employee Who Has Worked for His Firm for 30