Question

You are 25 years old and decide to start saving for your retirement. You plan to save $5,000

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? The amount that you will have accumulated for retirement is _____

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)? ______

​(Round to the nearest​ dollar.)

Answer 1

a.Information provided:

Annual saving= $5,000

Time= 65 years – 25 years= 40 years

Interest rate= 8%

The question is solved by computing the future value.

Enter the below in a financial calculator:

PMT= 5,000

N= 40

I/Y= 8

Press the CPT key and FV to compute the future value.

The value obtained is 1,295,282.59.

Therefore, the amount saved for retirement is $1,295,282.59$1,295,283.

b.Information provided:

Annual saving= $5,000

Time= 65 years – 35 years= 30 years

Interest rate= 8%

The question is solved by computing the future value.

Enter the below in a financial calculator:

PMT= 5,000

N= 30

I/Y= 8

Press the CPT key and FV to compute the future value.

The value obtained is 566,416.06.

Therefore, the amount saved for retirement is $566,416.06   $566,416.

In case of any query, kindly comment on the solution.