Explore BrainMass
Share

Explore BrainMass

    Insurance and Pension Funds

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Need help with these 2 problems.

    6. A client needs assistance with retirement planning. Here are the facts

     The client, Dave is 21 years old. He wants to retire at 65.
     Dave has disposable income of $2,000 per month.
     The IRA Dave has chosen has an average annual of 8%

    If Dave contributes half of his disposable income to the account, what will it be worth at 65? How much would he need to contribute to have $5,000,000 at 65?

    7. When opening an IRA account, investors have two options. With a regular IRA account, funds added are not taxed initially, but are taxed when withdrawn. With a Roth IRA, the funds are taxed initially, but not when withdrawn. If an investor wants to contribute $15,000 before taxes to an IRA, what will be the difference after 30 years between the two options? Assume that the investor is currently in the 25% tax bracket, and that the IRA will earn 6% per year.

    © BrainMass Inc. brainmass.com October 9, 2019, 5:31 pm ad1c9bdddf
    https://brainmass.com/business/annuity/insurance-and-pension-funds-59734

    Solution Preview

    6. A client needs assistance with retirement planning. Here are the facts

     The client, Dave is 21 years old. He wants to retire at 65.
     Dave has disposable income of $2,000 per month.
     The IRA Dave has chosen has an average annual of 8%

    If Dave contributes half of his disposable income to the account, what will it be worth at 65? How much would he need to contribute to have $5,000,000 at 65?

    The half of the disposalble income is $1,000 per month. The total time period from 21 years to 65 years is 44 years or 528 months. The interest rate is 8% per annum so it is 8/12=0.6667% per month. The ...

    Solution Summary

    The solution explains the future value calculations of an annuity and contributions to an IRA account.

    $2.19