Problem 1: 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?
Problem 2: 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 With a regular IRA account, funds added are not taxed initially, but are taxed when withdrawn. With a Roth IRA, the funds are taxed initially, but not when withdrawn.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.