Bob and Lisa are both married, working adults. They both plan for retirement and
ID: 2710395 • Letter: B
Question
Bob and Lisa are both married, working adults. They both plan for retirement and consider the $2,000 annual contribution a must.
First, consider Lisa’s savings. She began working at age 20 and began making an annual contribution of $2,000 at the first of the year beginning with her first year. She makes 13 contributions. She worked until she was 32 and then left full time work to have children and be a stay at home mom. She left her IRA invested and plans to begin drawing from her IRA when she is 65.
Bob started his IRA at age 32. The first 12 years of his working career, he used his discretionary income to buy a home, upgrade the family cars, take vacations, and pursue his golfing hobby. At age 32, he made his first $2,000 contribution to an IRA, and contributed $2,000 every year up until age 65, a total of 33 years / contributions. He plans to retire at age 65 and make withdrawals from his IRA.
Both IRA accounts grow at a 7% annual rate. Do not consider any tax effects.
Write a two to three (2-3) paragraph summary in which you:
Create a chart summarizing the details of the investment for both Bob and Lisa.
Explain the results in terms of time value of money.
Explanation / Answer
Solution :
Summary
Lisa
Bob
Contribution per annum
2000
2000
No of contribution
13
33
annual rate
0.07
0.07
total amount invested
26000
66000
accumulated amount at 65 year of age
637,037
2,881,625
Lisa :
Year
Opening
Investment
rate
Interest
Closing
20
0
2000
0.07
140
2,140
21
2140
2000
0.07
290
4,430
22
4429.8
2000
0.07
450
6,880
23
6879.886
2000
0.07
622
9,501
24
9501.478
2000
0.07
805
12,307
25
12306.58
2000
0.07
1,001
15,308
26
15308.04
2000
0.07
1,212
18,520
27
18519.61
2000
0.07
1,436
21,956
28
21955.98
2000
0.07
1,677
25,633
29
25632.9
2000
0.07
1,934
29,567
30
29567.2
2000
0.07
2,210
33,777
31
33776.9
2000
0.07
2,504
38,281
32
38281.29
2000
0.07
2,820
43,101
43100.98
remain invested till 65 year of her age
375,637
637,037
Bob :
Year
Opening
Investment
Rate
Interest
Closing
32
0
2000
0.07
140
2,140
33
2,140
2000
0.07
290
4,430
34
4,430
2000
0.07
450
6,880
35
6,880
2000
0.07
622
9,501
36
9,501
2000
0.07
805
12,307
37
12,307
2000
0.07
1,001
15,308
38
15,308
2000
0.07
1,212
18,520
39
18,520
2000
0.07
1,436
21,956
40
21,956
2000
0.07
1,677
25,633
41
25,633
2000
0.07
1,934
29,567
42
29,567
2000
0.07
2,210
33,777
43
33,777
2000
0.07
2,504
38,281
44
38,281
2000
0.07
2,820
43,101
45
43,101
2000
0.07
3,157
48,258
46
48,258
2000
0.07
3,518
53,776
47
53,776
2000
0.07
3,904
59,680
48
59,680
2000
0.07
4,318
65,998
49
65,998
2000
0.07
4,760
72,758
50
72,758
2000
0.07
5,233
79,991
51
79,991
2000
0.07
5,739
87,730
52
87,730
2000
0.07
6,281
96,011
53
96,011
2000
0.07
6,861
104,872
54
104,872
2000
0.07
7,481
114,353
55
114,353
2000
0.07
8,145
124,498
56
124,498
2000
0.07
8,855
135,353
57
135,353
2000
0.07
9,615
146,968
58
146,968
2000
0.07
10,428
159,395
59
159,395
2000
0.07
11,298
172,693
60
172,693
2000
0.07
12,229
186,922
61
186,922
2000
0.07
13,225
202,146
62
202,146
2000
0.07
14,290
218,436
63
218,436
2000
0.07
15,431
235,867
64
235,867
2000
0.07
16,651
254,518
Total
66000
2,881,625
Summary
Lisa
Bob
Contribution per annum
2000
2000
No of contribution
13
33
annual rate
0.07
0.07
total amount invested
26000
66000
accumulated amount at 65 year of age
637,037
2,881,625