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 effect. 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.

Answer 1

Bob and Lisa are married adults.Both decide to contribute some money during their working life, so as to get a good return at the age of retirement.

Lisa starts working at the age of 20 and began making annual contributions of $2000 per year starting with her first year of work i.e. 20. She worked until 32. So she was able to make a total of 13 contributions. The details are summarised in the chart below:

Contribution per year	$2000
No.of Contributions	13
Annual Growth rate of interest	7%
Cumulative PVF	8.357
Future Value of Annual Contributions                 2000*8.357	$16714

Bob started his IRA at the age of 33 years. He makes yearly contirbutions of $2000 per year till the age of 65. The details are summarised in the chart below:

Contributions per year	$2000
No. of Contirbutions	33
Annual Growth rate of interest	7%
Cumulative PVF	12.754
Future Value of Annual Contributions            2000*12.754	$25508