Question

jane and joe are classmates in college and get a job right after graduating at age 22. jane decides to contribute $2,000 annually to her 401(k) retirement account after joining her company, but at age 30, she stops her contributions after making her last payment (all together, she makes 9 payments during her working career). joe thinks he is too young to worry about retirement in his 20s, but at age 31 he begins to contribute $2,000 to his retirement account and continues these contributions all the way to retirement (he makes 35 payments during his working career). jane and joe work all the way through age 65. assume that they earn 9% annually on their retirement savings. how much money do jane and joe have at age 65? how much money would they have if they contributed to retirement from the start of their working careers? (hint: map out the timeline in excel for both)

Answer 1

Jane and Joe have $169,733.73 and $621,798.53 respectively in their retirement accounts at age 65. If they had contributed from the start of their working careers, Jane would have $492,618.07 and Joe would still have $621,798.53.

Step-by-step explanation:

To calculate the amount of money Jane and Joe have at age 65, we need to calculate the future value of their contributions to their 401(k) accounts.

For Jane, she contributes $2,000 annually for 9 years, starting at age 22. Joe contributes $2,000 annually for 35 years, starting at age 31. Both accounts earn a 9% annual rate of return.

1. Jane's contributions: $2,000 x 9 = $18,000
2. Future value of Jane's contributions at age 65: $18,000 x (1 + 0.09)33 = $169,733.73
3. Joe's contributions: $2,000 x 35 = $70,000
4. Future value of Joe's contributions at age 65: $70,000 x (1 + 0.09)34 = $621,798.53

If Jane and Joe had contributed from the start of their working careers, Jane would have made payments for 43 years (age 22 to 65) and Joe would have made payments for 35 years (age 22 to 65).

Using the same calculations, the future value of Jane's contributions would be $492,618.07 and the future value of Joe's contributions would be $621,798.53.