Question

If you made your first annual contribution of $12,000 in January 2021 to your retirement account, and assuming you will earn a return of 8% annually (compounded annually), what will your retirement account be worth when you retire in 40 years?

Answer 1

The future value of a single $12,000 contribution to a retirement account with an 8% annual return, compounded annually over 40 years, will be approximately $259,057.01, illustrating the substantial growth potential through compound interest.

Step-by-step explanation:

The retirement account, after a $12,000 contribution and 8% annual return compounded annually for 40 years, will be worth $259,057.01.

To calculate the future value of a single investment with compound interest, you use the formula FV = P(1 + r)^n, where FV is the future value, P is the principal amount (initial investment), r is the annual interest rate (expressed as a decimal), and n is the number of years the money is invested. Applying this to your scenario, with a principal amount of $12,000, an annual interest rate of 8% (or 0.08), and a time span of 40 years, we calculate the future value of the retirement account as follows:

FV = $12,000(1 + 0.08)^40

By doing the math, FV = $12,000(1.08)^40, which equals approximately $259,057.01.

This shows the power of compound interest over time, as the original investment has grown significantly. The sooner you start investing, the more time your money has to grow through compounding, which can lead to greater wealth accumulation for retirement.

Answer 2

The future value of a $12,000 contribution to a retirement account after 40 years, with an 8% annual return compounded annually, would be approximately $260,694.

Step-by-step explanation:

If you made your first annual contribution of $12,000 in January 2021 to your retirement account, and assuming you will earn a return of 8% annually compounded annually, you can calculate the future value of your retirement savings using the compound interest formula:

FV = P(1 + r)n

Where:

FV is the future value of the investment.

P is the principal amount (initial contribution).

r is the annual interest rate (in decimal form).

n is the number of years the money is invested.

For your retirement account:

P = $12,000

r = 0.08 (8% annual return)

n = 40 years until retirement

The calculation becomes:

FV = $12,000(1 + 0.08)40

FV = $12,000(1.08)40

FV = $12,000(21.7245)

FV = $260,694

So, when you retire in 40 years, your retirement account would be worth approximately $260,694, given these assumptions.