Real-Life Math -- Solution
Today your boss asked you to calculate her 85-factor in order to see how much pension she would receive per year if she retired immediately.
You know that an 85-factor refers to your boss's age added to her years of company service. And every year less than 85 means 3 percent subtracted from her pension.
She is 54 years and 5 months old and has worked for the company for 18 years and 8 months, so now you must figure out how much money she would receive if her maximum pension totals $50,000 per year.
First, you must determine what 54 years and 5 months equals in years using decimal points. As there are 12 months in a year, 1 year equals 12 / 12. Therefore, 5 months of one year equals 5 / 12.
5 / 12 = 0.42 (rounded up)
So 54 years and 5 months comes to 54.42 years. Now you need to know how many years of service she has with the company.
8 / 12 = 0.67
Therefore, 18 years and 8 months comes to 18.67 years.
"Actually, translating months into decimal points is one part of the pension calculation that I don't have to do anymore because I've already made a chart that I keep in my desk. Any time I need to turn months to decimal points, I just check my chart," says Marilyn Halsall.
To continue calculating your boss's pension information, you add her age to her years of service. Next you subtract her years of service from 85 -- remember it's the 85-factor.
54.42 + 18.67 = 73.09
85 - 73.09 = 11.91
Now you multiply 11.91 years by 3 percent (0.03) and get 0.3573 (35.73 percent).
Now you know that your boss will lose 35.73 percent of her $50,000 per year pension benefits. Or you could say she will get 64.27 percent of her $50,000 per year total, since 100 percent - 35.73 percent = 64.27 percent.
You know that 100 percent of something equals 1 whole unit, so 64.27 percent of something equals 0.6427 of a unit. So, to determine how much your boss would earn per year in pension, you simply multiply $050,000 x 0.6427 and get $32,135.
The answer to your boss's question is $32,135 -- her annual pension if she decided to retire immediately.
"Of course, the pension calculations I do are not official," says Halsall. "The ones I do are simply to update our executives on their pension status. My results are not official, but they do provide information that is very important to the people involved."