Case 2

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Case 10.4 — Investing for Retirement

Executive Summary
Retirement plans represent a unique opportunity to divert a portion of income into tax-deferred accounts. This report looks at hypothetical sample data from 194 couples with the aim of gaining a deeper understanding of what characteristics affect this group’s tendency to invest or not invest in retirement plans. First, basic tests were performed on provided data to examine if the given characteristics were related to the amount invested in retirement plans. We found moderate relationships between several characteristics that warranted further examination. Various additional tests and graphical analysis were performed in order to ascertain the relationship between individual characteristics, as well as groups of characteristics, and the percentage of income invested in retirement plans. Results show that while couples with a combination of higher salary, lower mortgages, and levels debt have a tendency to invest more in retirement plans, additional data should be collected for further investigation.

Analysis
1) The provided data contained information collected from 194 couples regarding four financial characteristics: Salary, mortgage size, level of debt, and percentage of salary invested in retirement plans. The maximum level of salary that can be invested in retirement plans is 15%. Table 1 summarizes this data: |Quartile |Salary |Mortgage |Debt |Invested % | |Max |$132,060 |$185,460 |$23,670 |15% | |3rd Quartile |$86,975 |$99,323 |$13,180 |10% | |Median |$72,355 |$78,415 |$9,890 |7% | |1st Quartile |$53,160 |$55,893 |$6,483 |4% | |Low |$10,770 |$5,070 |$0 |0% |

Table 1
Frequency distributions were also performed, showing that while in each characteristic most couples were concentrated around the average, the percentage of money invested in retirement plans was more evenly distributed (Illustration 1, Appendix A1). [pic]

Illustration 1
Tests were then run to determine if individual characteristics were related to each other. Although no highly significant correlations were uncovered, there were several moderately significant correlations between percentage invested and the three other characteristics that warrant further investigation (Table 2). Additionally, percentage invested in retirement was converted to a dollar amount based on salary earned. Tests performed on this figure also uncovered moderate correlations, leading to this data point being examined as well (Appendix A2).

|Correlation |Invested (%) |Salary |Mortgage |Debt |Children | |Invested (%) |1 |  |  |  |  | |Salary |0.400575429 |1 |  |  |  | |Mortgage |-0.2159916 |0.465237757 |1 |  |  | |Debt |-0.406082426 |0.123431808 |0.431764 |1 |  | |Children |-0.411089372 |-0.247648189 |0.318564 |0.442088 |1 |

Table 2

2) Graphs were constructed to examine the type or relationship between each characteristic and percentage and amounts invested in retirement...
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