Chapter P4, Problem 3RQ

To determine

The types of retirement accounts and the reason why it is important to invest in retirement accounts as soon as a person starts working

Explanation of Solution

The different kinds of retirement accounts are as follows:

1. Individual Retirement Account: An individual retirement account (IRA) is a retirement account that makes employees able to save money for retirement which has a tax advantage. This account can be opened in a financial institution which enables individuals to maintain tax-free savings in their accounts.
2. The 401(k): This account is an employer-sponsored account that makes people unable to add a large amount of savings for retirement. In this account, employers can also match contributions. This account considers both traditional IRA and Roth IRA plans.

The reason why it is important to invest in retirement accounts as soon as a person starts working:

1. It is helpful to start early retirement accounts because earlier investments provide much more potential to grow as compared to a late start. After all, a person can get the advantage of compound saving if starts earlier.
2. Late start can add waiting costs which means a person will have fewer savings at the end.

Economics Concept Introduction

Introduction: People use the money for different purposes. Some people invest money from where they can get higher profits in the future and some save money for their future needs. People invest in their retirement accounts to take tax advantage.