Complete The Following Homework Scenario: Bob And Lis 415126

Complete The Following Homework ScenarioBob And Lisa Are Both Married

Complete the following homework scenario: 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.

Paper For Above instruction

In examining the retirement savings strategies of Bob and Lisa, it becomes evident that timing and contribution patterns significantly influence the growth of their respective IRA accounts, exemplifying the principles of the time value of money (TVM). Lisa’s investment journey began early at age 20 with an annual $2,000 contribution over 13 years, ceasing at age 32 when she left full-time employment. Her savings, accumulated before her career break, will grow at 7% compounded annually, with a total contribution of $26,000. In contrast, Bob started his $2,000 annual contributions at age 32, contributing for 33 years until age 65, totaling $66,000. Despite both contributing the same annual amount, Bob's later start meant his funds had more years to compound, illustrating the power of early investment in maximizing future value.

Creating a comparative chart of their investment growth demonstrates the importance of the length of investment periods. Lisa’s initial contributions, though made early, were for a shorter total duration, resulting in lower compound growth compared to Bob's longer contribution period. Given a consistent growth rate of 7%, calculations show that Lisa’s IRA growth, by age 65, will be significantly less than Bob’s due to her shorter accumulation phase. This scenario underscores the critical role of the time value of money, where investing earlier allows more time for compound interest to amplify savings, highlighting that starting early with consistent contributions provides a substantial advantage. Both strategies demonstrate that disciplined, regular investing is essential, but the timing of contributions heavily influences the final retirement corpus, emphasizing the value of beginning to save as early as possible.

References

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