Discussion Question 1: How Have You Benefited From History

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Discussion Question 1how Have You Benefitted From The Historically Low How have you benefitted from the historically low interest rates in the United States in recent years? Review Question 1 What is the “interest rate,” and how is it determined? 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 the time value of money.

Dr. Jack HW Helper · Accepted Answer

The scenario involving Bob and Lisa provides an illustrative case of how consistent investments and interest accrual can significantly influence retirement savings, emphasizing the importance of time value of money. Lisa, who began investing at age 20, contributed $2,000 annually for 13 years, stopping at age 32 to focus on her family. She left her IRA invested, and although she did not contribute further, her initial contributions had the opportunity to grow compounded at 7% annually. Bob, who began contributing at age 32 and continued until age 65, invested $2,000 each year for 33 years. Both accounts experienced growth due to compound interest, demonstrating how time and consistency impact the total accumulation of retirement funds. Creating a comparative chart illustrates that although Lisa started contributing earlier—a key factor in the power of compound interest—her initial contributions had a shorter period to grow, and her total accumulated wealth will depend on how those investments compound over the years. Bob's consistent annual contributions over a longer period, starting later, showcase the benefits of regular, sustained investing. Using the time value of money principle, these scenarios underscore that money invested earlier benefits from exponential growth—highlighting that, in retirement planning, earlier investments can leverage compound interest to achieve larger savings. The results reveal that the earlier and more consistent the contributions, the more effectively the investments grow over time, reinforcing the critical importance of starting early in retirement savings strategies. References Grable, J. E., Moutsos, A., & Lytle, R. (2013). The impact of financial knowledge on financial behavior. Journal of Financial Counseling and Planning, 24(2), 90-102. Milevsky, M. A. (2006). Retirement income standards, planning, and decumulation. Journal of Financial Planning, 19(3), 40-48. Friedman, B. M. (2014). The impact of interest rate changes on

Discussion Question 1how Have You Benefitted From The Historically Low

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