How will the change in interest rates

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Suppose the interest rate declines on certain types of investment accounts commonly used by older Americans planning for retirement. Further, suppose that the decline was a surprise, but now that it has happened, it is expected to persist for the foreseeable future. Consider a 62 year old worker who lives alone and is still working, who is determining when in the future to enter retirement, and who has a retirement account impacted by the interest rate change.

(a) How will the change in this interest rate aect this person's present value of lifetime income (PVLI) at dierent potential retirement ages?

(b) How will the change in interest rates impact the worker's optimal retirement age. Appeal to income and substitution effects in your answer.

Reference no: EM132586899

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