As a newly hired assistant pofessor, you will be rquired to seect your preferred retirement based on the following 2 plans:
1. The state's defined benefit plan that will prvide annual retirement benfits determined by the formula 1.5% X years of servics X salary at retirement.
2. A defined contribution plan under which the university will contribute each year an amount equal to 8% of your salary.
In 2009, assume that you start with a salary of $100,000, wil receive a 3% raise each year, and the interest rate expected will be 6%. You plan to retire in 40 years and draw retirement pay for 20 years.
Based on this numerical comparison, which plan will you choose? Why?