Question

7. Suppose you have $100 to invest each month in a tax-deferred retirement

account, such as an Individual Retirement Account (IRA) or a 401(k) plan. The
plan has an average return of 10% per year, and you plan to retire at age 67.
Study the table, and then answer the following questions.
Start investing Total at
retirement
$100 per
month
at age 18
at age 25
at age 35
at age 45
$1,567,088
$788,430
$278,513
$95,317
a) If you invest $100 per month starting at age 18, how much more will you have when you retire than if you waited to start
investing at age 35?
b) If you wait until age 45 to begin investing for your retirement, how much less you would have than if you had begun
investing at age 25?

Answer 1

a) If you invest $100 per month starting at age 18, you will have $1,567,088 when you retire. If you wait to start investing at age 35, you will have $278,513 when you retire. Therefore, the difference between the two amounts is:

$1,567,088 - $278,513 = $1,288,575

So, if you invest $100 per month starting at age 18, you will have $1,288,575 more when you retire than if you wait to start investing at age 35.

b) If you wait until age 45 to begin investing for your retirement, you will have $95,317 when you retire. If you had begun investing at age 25, you would have had $788,430 when you retire. Therefore, the difference between the two amounts is:

$788,430 - $95,317 = $693,113

So, if you wait until age 45 to begin investing for your retirement, you will have $693,113 less than if you had begun investing at age 25.