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
This would indicate that couples with higher salary, lower debt, and smaller mortgages have a tendency to invest a higher percentage of income in retirement plans.

Follow-up testing was performed on the relationship between amounts invested in retirement and the three other characteristics. These tests confirmed salary as unsuitable for analysis (Appendix A8). After also eliminating number of children due to low significance, tests found the relationship between amount invested and mortgage and debt to be of low explanatory ability. This line of inquiry was abandoned (Appendix A9).

Conclusion

Based on tests testing the relationship between percent of income invested in retirement plans and the levels of salary, mortgage, and there are several conclusions that can be reached. The first is that of the three aforementioned factors, none has a significant individual relationship with percent of income invested in retirement plans. Second is that when combined, salary, mortgage, and debt have the strongest relationship of the data given. In fact, salary, mortgage, and debt account for 45% of the variation in percentage of income invested in retirement plans. This relationship indicates that couples with a combination of higher salary, lower debt, and smaller mortgages have a tendency to invest a higher percentage of their income in a retirement plan. Number of children was