Case 2 Essay

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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
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In particular, from graphical analysis it appears that number of children appears to have little to no relationship with percentage invested (Illustration 2, Appendix A3).
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Examination of the relationship between amount invested and salary, mortgage size, level of debt, and number of children revealed similar results (Appendix A4), with the exception of salary. The tests for this relationship indicated that the amount of variation may be not constant, and therefore not suitable for additional testing. This relationship was flagged for further examination in future analysis.

Finally, in order to check for all potential nonlinear relationships, 27 samples containing zero figures were removed and analyses were rerun. This revealed similar relationships and nonlinearity was not found. This line of inquiry was dropped.

3. A third series of tests were performed to determine a relationship between different combinations of characteristics and the percentage or amount of investment in retirement plans. Initial tests indicated that number of children was of low significance. Another test was run with salary, mortgage and debt alone (Appendix A5). The resulting model was of high significance, and accounted for 45% of the variation in percentage of income invested in retirement plans. The model found a positive relationship between percentage invested and salary, and a negative relationship between salary

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