You are graduating from college at the end of this semester and after reading The Business of...

Question:

You are graduating from college at the end of this semester and after reading The Business of Life, you have decided to invest $5,900 at the end of each year into a Roth IRA for the next 46 years.

If you earn 6% compounded annually, how much will you have when you retire in 46 years?

How much will you have if you wait 10 years before beginning to save and only make 36 payments in your retirement account?

Roth IRA:

A Roth individual retirement account (IRA) is a tax advantaged account for individuals. Most other retirement accounts offer tax advantages during the contribution phase. The Roth IRA offers tax advantages upon withdrawal of funds.

Answer and Explanation: 1

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Let

  • FV = balance in 46 years
  • PMT = periodic payment = $5,900
  • r = interest rate = 6%
  • n = years = 46

We can apply the future value of annuity formula...

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How to Find the Value of an Annuity

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Chapter 21 / Lesson 15
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An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.

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