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You plan to retire in 30 years. You are debating whether to deposit $31000 into an...

You plan to retire in 30 years. You are debating whether to deposit $31000 into an account earning 9 percent annually today or waiting 7 years before making the deposit. How much more will be in the account when you retire in 30 years if you make the deposit today as opposed to waiting 7 years to make the first deposit?

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Answer #1

If 31000 is deposited today, future value at the time of retirement will be - 31000(1+9%)^30 = $411298.03

If 31000 is deposited 7 years from now, future value at the time of retirement will be - 31000(1+9%)^23 = $224994.11

Thus, if I retire today I will have $186303.92 ($411298.03 - $224994.11) more in the account as compared to waiting 7 years to make the first deposit.

It is assumed that the 31000 will not earn any interest for the next 7 years if they are not deposited in the account.

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