Question
Hal Thomas, a 30-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirementincome, he can deposit $2,200 each year into
Hal Thomas, a 30-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirementincome, he can deposit $2,200
each year into a tax-deferred individual retirement arrangement (IRA). The IRA will earn a return of13% over the next 35 years.
a.If Hal makes annual end-of-year $2,200 deposits into the IRA, how much will he have accumulated by the end of his 65th
year?
b.If Hal decides to wait until age 40 to begin making annual end-of-year $2,200 deposits into the IRA, how much will he have accumulated by the end of his
65th year?
c.Using your findings in parts a and b, discuss the impact of delaying making deposits into the IRA for 10 years (age 30 to age 40)
on the amount accumulated by the end of Hal's 65th year.
d.Rework parts a and b assuming that Hal makes all deposits at the beginning, rather than the end, of each year. Discuss the effect of beginning-of-year deposits on the future value accumulated by the end of Hal's 65th year.
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