Business 141: Group __ Chapter 7 Project
List the Business Math Issue.
Saving at a young age is not realistic.
Defend or reject the Business Math Issue.
Group B rejects this Business Math Issue. There are ways in which parents can contribute to their children’s savings via interest-bearing savings accounts and benefit them in the long run. In addition, it is fair to say that many people by the age of 21 are close to finishing their college education and have a job that pays a sufficient income. They should be concerned about their companies’ benefits, such as a 401(k) plan and insurance. If the job does not offer a retirement plan, there are others who also have an IRA or other type of savings account. Kids in their late teens and early twenties can start saving by cutting back frivolous expenditures and finding more ways to inexpensively spend their leisure time. With the uncertainties of rising college costs and social security benefits in mind, young people need to save up for emergencies.
Provide information to support your position.
If a parent/grandparent can save up to at least $1,000 by the time a child is two years of age, they will be able to invest in a tax-deferred, no-load variable annuity. This can be accomplished by saving $1/day the first year and $2/day the second year. The USAA Life Variable Annuity and the Janus Retirement Advantage are two companies that have $1,000 initial investment minimums, and both companies let you choose among seven mutual funds. The parents or grandparents could take advantage of the Uniform Gifts to Minors Act. Although this may turn out to be less than a million dollars, it definitely helps savings. According to bankrate.com, savings accounts and CD’s seem favorable to parents, but they earn lower interest than stock portfolios. The website speculates that a $500 deposit with no additional contributions into a stock portfolio at 10% will yield $2,780 by the time the child reaches the age of 18.
Provide math calculations to support your position.
If a parent saves $1 every day…
Amount saved in a year = 365 days · $1 = $365
If a parent saves $2 every day…
Amount saved in a year = 365 days · $2 = $730
Amount saved in a year of saving $1/day and a year of saving $2/day = $365 + $730 = $1,095
As shown, a parent can save enough before the child even reaches the age of 2 to invest in one of the aforementioned variable annuity companies with $1,000 investment minimums.
$1,095 x 10% interest for 63 years = $68,985 + $1095 = $70,080 x 10% = $700,800
If a young person buys a lunch every day at work, it adds up. Let’s optimistically assume that a fast food lunch costs about $5, including tax.
Cost of buying lunch for five work days in a week = 5 · $5 = $25
Cost of buying lunch for a year = $25/week · 52 weeks/year = $1,300
List the key points of the article.
Retire a millionaire: Time is on your side (and so is Uncle Sam). The book’s key points are based on the assumption that you will earn 8% interest on the suggested savings.
Get help from Uncle Sam: You may qualify for a retirement-savings tax credit of 10-50% of the amount you contribute to an IRA, 401(k) or other retirement account. The credit can reduce your tax bill by up to $1,000. To qualify, your income must be $25,000 or less if you’re single, $37,500 or less if you’re a head of household or $50,000 or less if you’re married.
- If you’re 25 and you’ve saved $0, you need to save $286 per month.
Get help from your boss: If your employer offers a matching contribution, contribute at least enough to your 401(k) to capture the full match. Otherwise, you’re walking away from free money. Try to save 15% of your gross income for retirement, including your employer match.
- If you’re 35 and you’ve saved $0, you need to save $671 per month
- If you’re 35 and you’ve saved $50,000, you need to save $304 per month.