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# Insurance and Pension Funds

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Need help with these 2 problems.

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

&#61656; The client, Dave is 21 years old. He wants to retire at 65.
&#61656; Dave has disposable income of \$2,000 per month.
&#61656; 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 With a regular IRA account, funds added are not taxed initially, but are taxed when withdrawn. With a Roth IRA, the funds are taxed initially, but not when withdrawn.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.

#### Solution Preview

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

&#61656; The client, Dave is 21 years old. He wants to retire at 65.
&#61656; Dave has disposable income of \$2,000 per month.
&#61656; 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.

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