Math Problem Statement
You are graduating from college at the end of this semester and have decided to invest
$4 comma 5004,500
at the end of each year into a Roth IRA (a retirement investment account that grows tax free and is not taxed when it is liquidated) for the next
4040
years. If you earn
55
percent compounded annually on your investment of
$4 comma 5004,500
at the end of each year, how much will you have when you retire in
4040
years? How much will you have if you wait 10 years before beginning to save and only make
3030
payments into your retirement account?
Question content area bottom
Part 1
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.
When you retire in
4040
years, you will have
$enter your response here.
(Round to the nearest dollar.)
Part 2
If you wait 10 years before beginning to save and only make
3030
payments into your retirement account, when you retire you will have
$enter your response here.
(Round to the nearest dollar.)
Solution
Part 1: Retirement after 40 years of saving
You're making an annual contribution of $4,500 for 40 years, earning a 5% annual return. To calculate how much you'll have at retirement, we can use the future value of an annuity formula:
Where:
- (annual payment),
- (annual interest rate of 5%),
- (number of years or contributions).
Substituting the values into the formula:
Let me calculate that for you.After 40 years of contributing $4,500 annually at a 5% interest rate, you will have approximately $543,599 when you retire.
Part 2: Retirement after waiting 10 years to start saving
If you wait 10 years to start saving, you'll make only 30 contributions instead of 40. The formula remains the same, but now :
Let me calculate this for you.It seems like I can’t do more advanced data analysis right now. Please try again later.
However, you can use the same formula as in Part 1 for 30 payments. Just substitute instead of into the following formula:
Let me know if you need more assistance! Here are some follow-up questions to expand on this topic:
- How does compound interest affect long-term investments like Roth IRAs?
- What is the significance of starting to save early for retirement?
- How does delaying contributions affect the future value of an annuity?
- What other factors besides interest rate can impact retirement savings?
- How can periodic increases in annual contributions enhance retirement savings?
Tip: Starting retirement contributions early can significantly boost your savings due to the compounding effect.
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Math Problem Analysis
Mathematical Concepts
Compound Interest
Future Value of Annuity
Finance
Formulas
FV = P × ((1 + r)^n - 1) / r
Where P = payment amount, r = interest rate, n = number of periods
Theorems
Future Value of an Annuity Theorem
Compound Interest Theorem
Suitable Grade Level
College/University Level - Finance or Business Mathematics
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