Dan and Asha are both married, working adults. They both plan for retirement and consider the $4,000 annual contribution a must.
First, consider Asha’s savings. She began working at age 20 and began making an annual contribution of $4,000 at the first of the year beginning with her first year. She makes 15 contributions. She worked until she was 35 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 67.
Dan started his IRA at age 40. The first 20 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 40, he made his first $4,000 contribution to an IRA and contributed $4,000 every year up until age 67, a total of 27 years/contributions. He plans to retire at age 67 and make withdrawals from his IRA.
Both IRA accounts grow at a 8% annual rate. Do not consider any tax effect.
A. Using TVM calculate the amount in Asha’s account when she turns 67
B. Using TVM calculate the amount in Dan’s account when he turns 67