At your new job you estimate that your average salary over your working years will be $95,000 per year. How many more years would you have to work to receive as much benefit from a flat benefit of $3,000 times years of service as you would receive from 3.75% of your average salary times years of service?

Question

Quizplus · Accepted Answer

We need to find out how many years of service we need to work to receive the same benefit from both flat benefit and 3.75% of average salary methods. Let's call this number of years "y".
For the flat benefit method: Benefit = 3000y
For the 3.75% of average salary method: Benefit = 0.0375 * 95000 * y = 3562.5y
We need to set these two benefits equal and solve for y:
3000y = 3562.5y
562.5y = 0
y = 5.33 years
So, we would need to work 5.33 years to receive the same benefit from both methods.
Now, we need to compare this to the number of years we would work if we only used the flat benefit method. Let's call this number of years "x". We need to solve for x:
3000x = 95,000x
x = 31.67 years
So, if we only used the flat benefit method, we would need to work 31.67 years to receive the same benefit as we would in 5.33 years using both methods. 
Therefore, we need to work 1.19 times as many years to receive the same benefit using only the flat benefit method as we would using both methods. 
The answer is: Choice C.

At Your New Job You Estimate That Your Average Salary