The Individual Retirement Account is an account that allows people to save their money for retirement with significantly huge tax-breaks. Lisa started saving in an IRA a payment of $2000 every year which she started when she was 20 years old. She continued with the payment until she was 32 after which she stopped due to the focus on bringing up her children. As such, she made the payment for 13 years which means she was supposed to receive a total of 27820 including the 7% annual growth rate. Regardless of the age of starting the investments, the conventional dates for accessing them is around 65 years.
On the other hand, Bob made a total of 33 payments which means a total of $ 70620 at the time he reaches 65 years old. Although he started his investments while he was a little bit older, he is the one of the two that will have the best value for their money. Granted, Lisa started investing earlier but it should be noted that the benefits of the investments she would start seeing when she was at 65 years of age. Although she could get the money earlier, it would mean that the income taxes that are initially exempted are applied. As such, it will be nonsensical. However, Bob decided to build a house first and live life before investing his own share.
Delegate your assignment to our experts and they will do the rest.
Although the two parties made a payment for $2000 every year, it is very unlikely that Lisa’s lifestyle is similar to Bob’s. For starters, it is not clear whether Lisa has a home, up-to-date vehicles, has gone to interesting vacations or has developed a hobby. However, it is clear that at her prime, a significant amount of her earnings was going to the IRA. What is more, she goes on to live work and with the burden of a child, it is possible that her quality of life is taking a downturn. However, for Bob the opposite is true since by the time he starts on the investments he has a home, cars, hobby, vacation memories and quite possible has not struggled to pay his early quota. As such, his is the smart one of the two.
| Lisa | Bob | |
| Current Balance | 0 | 0 |
| Annual Contribution | $2000 | $2000 |
| Investment Return | 7% | 7% |
| Current Age | 32 | 32 |
| Total Payments | 13 | 33 |
| Retirement Age | 65 | 65 |
| Balance at Age 65 | $40,281.29 | $237,866.85 |
