Retirement Decision-Making: A Pedagogical Application

Abstract

This paper offers a pedagogical application on retirement decision-making that focuses on the roth IRA versus a traditional deductible IRA (RVD) allocation choice. This paper's exercise challenges students to study the relevant IRA factors and equations that are intrinsic to a procedure that derives an optimal RVD outcome. Students learn that the RVD decision depends on contribution and withdrawal tax rates. They also gain experiential knowledge and skills on how to break down the RVD analysis in an algorithmic manner. By experiencing this exercise, students acquire important insight on how to allocate their retirement investments between the two major IRA types. Finally, our instructional exercise enables students to apply finance formulas and enhance their Excel skill.