Final answer:
Cindy likely has more money saved for retirement than Bob because she started saving $2,000 yearly at age 25, utilizing the power of compound interest, whereas Bob began later at age 50 saving $4,000 yearly. The principle of compound interest indicates that starting earlier can lead to greater accumulation of wealth due to interest building upon interest.
Step-by-step explanation:
To answer who has the most money in their retirement account, we must recognize the power of compound interest. Cindy began saving at age 25, putting away $2,000 a year. By starting early, she allowed her savings to grow more significantly over time. Bob, on the other hand, waited until age 50 to start saving, and although he contributed $4,000 per year, double Cindy's amount, he had less time for his investments to compound.
Without knowing the rate of return, we cannot calculate the exact amounts in each retirement account. However, a key principle of compound interest is that money invested grows exponentially over time. This principle suggests that Cindy, who started saving 25 years earlier, would likely have a larger retirement account despite investing less money annually. Compound interest allows the money to grow more as it earns interest on both the initial principal and the accumulated interest.
In conclusion, although Bob saved a larger amount annually, Cindy's decision to start saving earlier and allowing her savings to compound over a longer period would give her a financial advantage. The economic and personal finance principles at play emphasize the importance of starting to save early in life to maximize the benefits of compound interest.