1.7 Personal Financial Planning Problem: Payback Method

Problem: Shlomo is 62 years old and is entitled to Social Security retirement benefits of $800 monthly until he passes on. If he waits until age 66, he would be entitled to greater benefits, in the amount of $1,200 per month. He turns to the Payback Method to decide.

Solution: If Shlomo takes the benefits now, he will receive (4) (12) ($800) = $X that he would not otherwise have had at all if he waited the four additional years. If he does wait the four years, he will receive $400 more per month. At that rate, it will take him $X / $400 = Y months, or (y / 12) = Z years, to break even.


  1. Calculate out X, Y, and Z.
  2. Does Shlomo’s (expected) longevity matter to his choice of action?
  3. Would it matter if he did a Discounted Payback?
  4. What would YOU do? What would you tell Shlomo?



Social Security retirement benefits increase each year, so that it may pay to wait, in any event. One can wait until 70 before taking the benefits. 



Icon for the Creative Commons Attribution 4.0 International License

Corporate Finance Copyright © 2023 by Kenneth S. Bigel is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

Share This Book