Bob and Lisa are both married, working adults. They both plan for retirement and consider the $2,000 annual contribution a must.
First, consider Lisa’s savings. She began working at age 20 and began making an annual contribution of $2,000 at the first of the year beginning with her first year. She makes 13 contributions. She worked until she was 32 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 65.
Bob started his IRA at age 32. The first 12 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 32, he made his first $2,000 contribution to an IRA and contributed $2,000 every year up until age 65, a total of 33 years/contributions. He plans to retire at age 65 and make withdrawals from his IRA.
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Both IRA accounts grow at a 7% annual rate. Do not consider any tax effect.
A. Using TVM calculate the amount in Lisa’s account when she turns 65
B. Using TVM calculate the amount in Bob’s account when she turns 65
C. Explain the differences in the amount in these two accounts in terms of TVM