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You are graduating from college at the end of this semster and after reading the Business...

You are graduating from college at the end of this semster and after reading the Business of Life box in this chapter, you have decided to invest $5,800 at the end of each year into a ROth IRA for the next 41 years. If you earn 7 percent compunded annually on your investment, how much will you have when you retire in 41 years? How much will you have if you wait 10 years before beginning to save and only make 31 payments into your retirement account?

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Answer #1

We need to calculate the Future value of annual payments that you plan to make for different time periods. FV of annuity is mathematically expressed as:

a) Assuming payments made for 41 years

FV = 5800 * 214.6096

FV of annuity = $1,244,735.51 --> amount accumulated when contributions made for 41 years

b) Assuming payments made for 31 years

FV = 5800 * 102.0730

FV of annuity = $592,023.64 --> amount accumulated when contributions made for 31 years

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