Question

Assume you can earn 9% per year on your investments.

If you invest $100,000 for retirement at age 30, how much will you have 35 years later for retirement? (Answer: $2,041,397)

If you wait until age 40 to invest the $100,000, how much will you have 25 years later for retirement? (Answer: $862,308)

Why is the difference so large?

Answer 1

	Amount investment =		$                             1,00,000
	Interest rate per year Per Annum		9%
	Period = 35 Years
	Years	Investment	Interest @ 9 % Per Year	Running Bal
	1	$1,00,000	$9,000	$1,09,000
	2		$9,810	$1,18,810
	3		$10,693	$1,29,503
	4		$11,655	$1,41,158
	5		$12,704	$1,53,862
	6		$13,848	$1,67,710
	7		$15,094	$1,82,804
	8		$16,452	$1,99,256
	9		$17,933	$2,17,189
	10		$19,547	$2,36,736
	11		$21,306	$2,58,043
	12		$23,224	$2,81,266
	13		$25,314	$3,06,580
	14		$27,592	$3,34,173
	15		$30,076	$3,64,248
	16		$32,782	$3,97,031
	17		$35,733	$4,32,763
	18		$38,949	$4,71,712
	19		$42,454	$5,14,166
	20		$46,275	$5,60,441
	21		$50,440	$6,10,881
	22		$54,979	$6,65,860
	23		$59,927	$7,25,787
	24		$65,321	$7,91,108
	25		$71,200	$8,62,308
	26		$77,608	$9,39,916
	27		$84,592	$10,24,508
	28		$92,206	$11,16,714
	29		$1,00,504	$12,17,218
	30		$1,09,550	$13,26,768
	31		$1,19,409	$14,46,177
	32		$1,30,156	$15,76,333
	33		$1,41,870	$17,18,203
	34		$1,54,638	$18,72,841
	35		$1,68,556	$20,41,397
	Amount investment =		$                             1,00,000
	Interest rate per year Per Annum		9%
	Period = 25 Years
	Years	Investment	Interest @ 9 % Per Year	Running Bal
	1	$1,00,000	$9,000	$1,09,000
	2		$9,810	$1,18,810
	3		$10,693	$1,29,503
	4		$11,655	$1,41,158
	5		$12,704	$1,53,862
	6		$13,848	$1,67,710
	7		$15,094	$1,82,804
	8		$16,452	$1,99,256
	9		$17,933	$2,17,189
	10		$19,547	$2,36,736
	11		$21,306	$2,58,043
	12		$23,224	$2,81,266
	13		$25,314	$3,06,580
	14		$27,592	$3,34,173
	15		$30,076	$3,64,248
	16		$32,782	$3,97,031
	17		$35,733	$4,32,763
	18		$38,949	$4,71,712
	19		$42,454	$5,14,166
	20		$46,275	$5,60,441
	21		$50,440	$6,10,881
	22		$54,979	$6,65,860
	23		$59,927	$7,25,787
	24		$65,321	$7,91,108
	25		$71,200	$8,62,308
	Comment : Time value of the investment is money . So whenever we keep the our ivestment
	for longer time than our investment will be grow more.
	In the first schenario the investment is for for the 35 years and in the second schanrio the investment
	is only for the 25 years
	If we saw both the above calculation than at the end of the 25 years the value of the investment is
	the same. As the time is increases the investment will increases and intrest is paid on cumulative value
	of the investment and interest, in inititla stages the cumulative value is less so interest is less recived
	after the 25 years the investment is become good so interest on investment will increases rapidly after
	the 25 years so there is the hdudge difference because of this.