Assume you want to retire early at age 52. You plan to save using one of the following two strategies: (1) save $3,000 a year in an IRA beginning when you are 22 and ending when you are 52 (30 years), or (2) wait until you are 37 to start saving and then save $6,000 per year for the next 15 years. Assume you will earn the historic stock market average of 14% per year.
Requirements
1. How much “out-of-pocket” cash will you invest under the two options?
2. How much savings will you have accumulated at age 52 under the two options?
3. Explain the results.
4. If you were to let the savings continue to grow for 10 more years (with no further out-of- pocket investments), what would the investments be worth when you are age 62?