Question

Bradley invested an average of $550 per month since age 49 in various securities for his retirement savings. His investments averaged a 7% annual rate of return until he retired at age 73. Given the same monthly investment and rate of return, how much more would Bradley have in his retirement savings had he started investing at age 40? Assume monthly compounding.

Answer 1

To estimate the amount Bradley would have at age 73 if he started investing in 40 we use the future annuity formula given by:
A=P[((1+r)^n-1)/r]
where:
P=principle
r=rate
n=time
thus plugging in the values we get:
A=12×550=$6600
n=73-40=33
r=7%
hence
A=6600[((1.07)^33-1)/0.07]
simplifying the ^ we get:
A=784,960.6054
Hence the answer is: $784, 960.6054