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You are 25 years old and decide to start saving for your retirement. You plan to save $5000 at the end of each year (so the first deposit will be one year from now), and will make the last deposit when you retire at age 65. Suppose you earn 8% per year on your retirement savings.

a. How much will you have saved for retirement?

b. How much will you have saved if you wait until age 35 to start saving (again, with your first deposit at the end of the year)?

Answer :

facundobuzzetti

Answer:

Instructions are listed below

Explanation:

Giving the following information:

You are 25 years old and decide to start saving for your retirement. You plan to save $5000 at the end of each year (so the first deposit will be one year from now) and will make the last deposit when you retire at age 65. Suppose you earn 8% per year on your retirement savings.

1) We need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

FV= {5000*[(1.08^40)-1]}/0.08= $1,295,282.60

2) What happens if he waits 10 years:

FV= {5000*[(1.08^30)-1]}/0.08= $566,416.06

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