Question

ANALYZE: Investing for Retirement

Retiring on Social Security income alone is extremely difficult, which is why it is vital that
people invest for their own retirement. Analyze the three graphs provided in order to learn
more about investing for retirement.
$1,200,000
$1,000,000-
$800,000-
$600,000
$400,000
$200,000-
$0
25
Graph I Growth of Retirement Accounts
. Susan invests $5,000
annually between the
ages of 25 and 35
b. Different:
In total, she invests
$50,000
30
35
• Bill invests $5,000
annually between the
ages of 35 and 65
In total, he invests
$150,000
40
45
Age
50
. Chris invests $5,000
annually between the
ages of 25 and 65
In total, he invests
$200,000
55
60
$1,142,811
$602,070
$540,741
65
1. Which investor had the highest balance when they turned 65 in this example?
2. How are the actions of the three investors similar? How are they different?
a. Similar:

Answer 1

The investor with the highest balance at 65 in the example is Chris with $1,142,811. All three investors invest $5,000 annually, but for different lengths of time, which affected their total savings due to the power of compound interest.

To analyze the growth of retirement accounts for three different investors named Susan, Bill, and Chris, we will look at the graphs provided and discuss the outcomes.

Highest Balance at Age 65:

According to the graphs, the investor with the highest balance at age 65 is Chris, who invested $5,000 annually between the ages of 25 and 65, ending with a total amount of $1,142,811.

Similarities and Differences in Investors' Actions:

All three investors have similar investment strategies in that they each save the same annual amount of $5,000. The main difference is the length of time they chose to invest. Susan invests for 10 years, Bill for 30 years, and Chris for 40 years.

This example showcases the power of compound interest and the importance of starting to save early for retirement. The concept is critical for ensuring financial stability in retirement, a time when Social Security income may not be sufficient. Evident from the example, saving consistently over a long period can lead to significant growth in retirement savings due to the effect of compound interest.