Decided to start contributing to ira account

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Reference no: EM131981016

(FV calculations): Suppose your friend (the same age as you) has decided to start contributing to his (her) IRA account starting this year in the amount of $3,000 per year until retirement at age 70. You, instead, have decided to buy a car but will start contributing to your IRA FIVE years from now (the same $3,000 per year until age 70). A naive approach would be to think of the difference as 5*$3,000=$15,000. However, this approach ignores the power of compounding. What's the real difference at age 70 if both accounts will deliver the same 8% rate of return per year?

Reference no: EM131981016

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