Question

Worker A annually invests $1,000 in an IRA for nine years (ages 27 through 35) and never makes another contribution. Worker B annually invests $1,000 in an IRA for thirty years (ages 36 through 65). Which worker will have more in his or her account when he or she retires if they both earn 8 percent on their investments?

Answer 1

Given, both of them retires at the age of 65 years.

Worker A: If he invests $1,000 for 9 years till age of 35. He gets the rate of return at 8%. The accumulated money is,

FV=(rate,nper,pmt,pv,type)

rate=8%

nper=9

pmt=1000

=FV(8%,9,-1000,0,0)=$12,487.56

Worker A retires after 30 years at the age of 65.

FV=$12,487.56*(1+8%)^30

FV=$125,658.01.

Worker A accumulates $125,658.01 at the time of retirement

Worker B: Worker B invests $1000 for 30 years till the age of the 65.

Formula is=FV(rate,nper,pmt,pv,type)

=FV(8%,30,-1000,0,0)

FV=$113,283.21

Worker B accumulates $113,283.21 at the time of the retirement.