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Retirement planning Personal Finance Problem Hal Thomas, a 3 5 - year - old college graduate, wishes to retire at age 6 0 . To
Retirement planning Personal Finance Problem Hal Thomas, a yearold college graduate, wishes to retire at age To supplement other sources of retirement income, he can deposit
$ each year into a taxdeferred individual retirement arrangement IRA The IRA will earn a return of over the next years.
a If Hal makes endofyear $ deposits into the IRA, how much will he have accumulated in years when he turns
b If Hal decides to wait until age to begin making endofyear $ deposits into the IRA, how much will he have accumulated when he retires years later?
c Using your findings in parts a and discuss the impact of delaying deposits into the IRA for years age to age on the amount accumulated by the end of Hal's th year.
d Rework parts and assuming that Hal makes all deposits at the beginning, rather than the end, of each year. Discuss the effect of beginningofyear deposits on the future value
accumulated by the end of Hal's th year.
a If Hal makes annual endofyear $ deposits into the IRA, the amount he will have accumulated by the end of his th year is $Round to the nearest cent.
b If Hal decides to wait until age to begin making annual endofyear $ deposits into the IRA, the amount he will have accumulated by the end of th year is $
Round to the
nearest cent.
c Using your findings in parts a and which of the following options better describes the impact of delaying making deposits into the IRA for years age to age on the amount
accumulated by the end of Hal's th year? Select the best answer below.
By delaying the deposits by years, Hal is incurring a significant opportunity cost. This cost is due to both the lost deposits of and the lost compounding of interest
on all of the money for years.
By delaying the deposits by years, Hal earns a large capital gain. This gain is due to both the saved deposits of $ $ yrs and the gained compounding of interest on all
of the money not deposited for years.
d If Hal makes annual beginningofyear $ deposits into the IRA, the amount he will have accumulated by the end of his th year is $ Round to the nearest cent.
If Hal decides to wait until age to begin making annual beginningofyear $ deposits into the IRA, the amount he will have accumulated by the end of his th year is $
Round to the
nearest cent.
Both deposits increaseddecreased due to the extra year of compounding from the beginningofyear deposits instead of the endofyear deposits. The incremental change in the yearyear annuity is much
larger than the incremental compounding on the yearyear deposit due to the larger sum on which the last year of compounding occurs.
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