Question

Todd and Jessalyn are 25, newly married, and ready to embark on the journey of life. They both plan to retire 45 years from today. Because their budget seems tight right now, they had been thinking that they would wait at least 10 years and then start investing $2400 per year to prepare for retirement. Jessalyn just told Todd, though, that she had heard that they would actually have more money the day they retire if they put $2400 per year away for the next 10 years - and then simply let that money sit for the next 35 years without any additional payments - than they would have if they waited 10 years to start investing for retirement and then made yearly payments for 35 years (as they originally planned to do).

Answer 1

The last part of Question:

How much money will Todd and Jessalyn have in 45 years if they do nothing for the next 10 years, then puts $2400 per year away for the remaining 35 years?

Answer:

Todd and Jessalyn will still have $346,590.23 in 45 years if they do nothing

Explanation:

End of the year deposit, Annuity (A) = $2,400

Interest rate, r = 7.2%  = 0.072

Number of years of deposit, n = 35

The future value can be calculated given the formula:

$FV =A * \frac{(1+r)^{35} -1 }{r} \\FV =2400* \frac{(1+0.072)^{35} -1 }{0.072}$

FV = 2400 * 144.413

FV = $346,590.23

Todd and Jessalyn will still have $346,590.23 in 45 years if they do nothing. The money they have saved for 35 years will outlive their 10 years of idleness