Question

Mary, age 27, annually invests $1,000 in an IRA starting this year through the year of her 35th birthday, and then never makes another contribution. Sara, age 36, annually invests $1,000 in an IRA through the year of her 65th birthday. If both Mary and Sara can earn 8% on their investments, who will have more in her IRA account when she retires at the end of her 65th year AND approximately how much more will she have in her account?

Answer 1

For Mary,

Calculating Value at the end of Year 36,

Using TVM Calculation,

FV = [PV = 0, PMT = 1,000, N = 8, I = 0.08]

FV = $10,636.63

Value at the end of Year 65 = 10,636.63(1.08)³⁰

Value at the end of Year 65 = $107,032.76

For Sara,

Calculating Value at the end of Year 65,

using TVM Calcaulation,

FV = [PV = 0, PMT = 1,000, N = 30, I = 0.08]

FV = 113,283.21

Difference in Amount = 113,283.21 - 107,032.76

Difference in Amount = $6,250.45