Question

You are 23 years old and decide to start saving for your retirement. You plan to save $ 6,500 at the end of each year​ (so the first deposit will be one year from​ now), and will make the last deposit when you retire at age 69. Suppose you earn 12% per year on your retirement savings.

a. How much will you have saved for​ retirement?

b. How much will you have saved if you wait until age 40 to start saving​ (again, with your first deposit at the end of the​ year)?

Answer 1

(a) Annual Year-End Deposits = $ 6500

Current Age = 23 years and Age of Final Deposit = 69

Deposit Tenure = Number of Deposits = 69 - 23 = 46

Rate of Return = 12 %

Therefore, Total Savings by the age of 69 = 6500 x (1.12)^(45) + 6500 x (1.12)^(44) +......+ 6500 = $ 9894414.635

(b)

Annual Year-End Deposits = $ 6500

Age when I start saving = 40 years (actually 41 as that is when I make the first deposit) and Age of Final Deposit = 69

Deposit Tenure = Number of Deposits = 69 - 40 = 29

Rate of Return = 12 %

Therefore, Total Savings by the age of 69 = 6500 x (1.12)^(28) + 6500 x (1.12)^(27) +......+ 6500 = $ 1394787.9

answered by: anonymous