In: Finance
In an effort to teach your child about the importance of investing early, show how much impact on their retirement wealth forgoing one $4,000 IRA deposit will have if they are age 25 and plan to retire at age 65, and are assuming an investment portfolio that earns 7.5% per year.
We need to find the future value of missing one deposit of $4,000 for (65 - 25) = 40 years
FV = PV * (1 + r)^n
r = 7.5% = 0.075
FV = 4,000 * (1 + 0.075)^40
FV = 4,000 * 18.0442389698
FV = $72,176.9558792
The retirement account would be lower by $72,176.9558792 if we miss just one deposit of $4,000 for 40 years