Week 6 Homework: Retirement Contribution Problem

Week 6 Homework: Retirement Contribution Problem

In one paragraph, summarize the details of the investment for both Larry and Beth. Explain the results in terms of time value of money. Discuss why one person was able to save a great deal more than the other.

Paper For Above instruction

The retirement investment scenarios for Larry and Beth demonstrate the profound impact of time value of money on savings growth over different periods. Beth, starting to save at a younger age of 32, benefits from the power of compounding over a longer time horizon, allowing her investments to grow exponentially despite potentially equal or smaller contributions. In contrast, Larry begins saving later, up to age 65, which limits the compounding effect and results in a significantly smaller accumulation of retirement funds. The fundamental principle at play is that money invested earlier has more time to accrue interest, leading to a larger future value (FV). This difference highlights how early contributions, even if modest, can significantly outperform larger contributions started later in life. The results clearly show that time value of money amplifies the benefits of early and consistent investing, making early retirement savings more effective than delayed efforts. The disparity in savings between Larry and Beth underscores the importance of starting retirement planning early to maximize growth through compound interest and ensure more comfortable financial security in later years.

References

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