Part II: Exponential Growth in Saving for Retirement Question 3. Between the stress of finding a full-time job and the stress of beginning to pay off student loans, many recent college graduates don't think at all about saving for retirement. That's something they will begin to do some day after they ve paid off their student loans, or established their career or saved up enough to buy their first home, or saved up enough for the baby, or saved up enough for that vacation the list can sometimes go on and on unti retirement is near and we realize we are prepared! This is an unfortunato reality that many people close to retirement in the US are currently facing People assume that they can make up for all the years of not saving simply by saving more money at a later time. For example, why save ony $2,000 toward retirement when you are 22 when you can instead use that money for something else and save $10,000 toward retirement when you are 42 and more ostablished in your life and your career But is that realy true? Let's find out You cannot save enough for retirement by using a savings account in a bank. The average Interest rate for a savings account is currently less than 1% Compare that to the inflation we calculated last week and you will quickly see how much value you lose every year. Instead, retirement funds are often invested in common stocks and bonde. When investing your retirement funds in stocks the money will increase during certain years and will decrease during other years depending on the stock market performance. In the long run, however, you will see an increase in your money. This is exponential growth. Analysts can create models that predict what the overal growth of your funds will be on average, yoar to year We are going to use a model where the average Interest eamed would be 10.3% per your. To calculate this exponential growth, wo return to the exponential formula wa used in Wook 4 y P. (1ryx, where is the interest rate a 12 points say you decide to start saving for retirement when you are 22. You can only put aside $2.000 that year For right now let's also assume that you never add any other money into the retirement account you just let that 52.000 grow. (This assumption will allow us to compare answers for parts a, b, and c) Using either a table in Excel of an equation, calculate how much money you will have in your retirement account when you are 67 years old. Paste in the table you used or show your work 1.12 points Let's say that when you were 22 you didn't even bother opening a retrement account - you could only save a tiny bit, so what was the point? You are now 32 and are finally starting to hit your stride in your chosen career. You decide now is the time to put aside a bit for retirement. You just bought a new house and you are expecting a baby soon, so you can only afford to put away $5,000. Let's assume you never add any other money into that retirement account. Using a table in Excel or an equation calculate how much money you will have in your retirement account when you are 67 years old. Paste in the table you used or show your work c. 12 points) Now let's look at what could happen if you wait until the age of 42 to save for retirement You thought you had far too little money at the age of 22, and when 32 rolled around you realized you had all the current major life expenses that needed your money more than retirement for some future day But now you are But is that really truo? Lets find out You cannot save enough for retirement by using a savings account in a bank. The average interest rate for a savings account is currently less than 1%. Compare that to the inflation we calculated last week and you will quickly see how much value you lose every year. Instead, retirement funds are often invested in common stocks and bonds. When Investing your retirement funds in stocks, the money wil increase during certain years and will decrease during other years depending on the stock market performance. In the long run, however, you will see an increase in your money. This is exponential growth. Analysts can create models that predict what the overall growth of your funds will be on average, year to year We are going to use a model where the average interest eamed would be 10.3% per year. To calculate this exponential growth, we retum to the exponential formula we used in Week 4 y P. (1+ry"x, where is the interest rate. A. 12 points] Say you decide to start saving for retirement when you are 22. You can only put aside $2.000 that year. For right now let's also assume that you never add any other money into the retirement account - you just let that $2.000 grow. (This assumption will low us to compare answers for parts a, b, and a.) Using other a table in Excel or an equation, calculate how much money you will have in your retirement account when you are 67 years old. Paste in the table you used or show your work b. [2 points] Let's say that when you were 22 you didn't even bother opening a retirement account - you could only save a tiny bit. so what was the point? You are now 32 and are finally starting to hit your stride in your chosen career You decide now is the time to put aside a bit for retirement. You just bought a new house and you are expecting a baby soon, so you can only afford to put away $5,000. Lot's assume you never add any other money into that retirement account. Using a table in Excel an equation, calculate how much money you will have in your retirement account when you are 67 years old. Paste in the table you used or show your work c. 12 points] Now lor's look at what could happen you wait until the age of 42 to save for retirement. You thought you had far too ltde money at the age of 22, and When roled around you realized you had all these current major fe expenses that needed your money more than retirement for some future day But now you are 42 and you're starting to get nervous. You are able to put aside $10,000 to start a retirement fund. Let's assume you never add any other money to the retirement account. Using a table in Excel or an equation calculate how much money you will have in your retirement account when you are 67 years old Paste the tablo you used or show your work a. [2 points) Compare your answers for A, B and C. What percent more do you have for retirement by saving at 22 instead of 32? What percent more do you have for retirement by saving at 22 instead of 427 .. 12 points) How does delaying when you begin to save for retirement effect the amount you have when you retire? What advice would you give to a student fresh out of college who says they can't afford" to start saving for retirement until they pay off their student loans, save for a house, accumulate more wealth otc.? (Keep in mind that in the examples above we assumed no further contributions to the retrement fund In reality, you will be able to contribute more and more each year as you start to eam more ) Discuss your answers to these questions in a thoughtfully writen paragraph (if you write a one sentence answer you will receive zero points for the problem.) Part II: Exponential Growth in Saving for Retirement Question 3. Between the stress of finding a full-time job and the stress of beginning to pay off student loans, many recent college graduates don't think at all about saving for retirement. That's something they will begin to do some day after they ve paid off their student loans, or established their career or saved up enough to buy their first home, or saved up enough for the baby, or saved up enough for that vacation the list can sometimes go on and on unti retirement is near and we realize we are prepared! This is an unfortunato reality that many people close to retirement in the US are currently facing People assume that they can make up for all the years of not saving simply by saving more money at a later time. For example, why save ony $2,000 toward retirement when you are 22 when you can instead use that money for something else and save $10,000 toward retirement when you are 42 and more ostablished in your life and your career But is that realy true? Let's find out You cannot save enough for retirement by using a savings account in a bank. The average Interest rate for a savings account is currently less than 1% Compare that to the inflation we calculated last week and you will quickly see how much value you lose every year. Instead, retirement funds are often invested in common stocks and bonde. When investing your retirement funds in stocks the money will increase during certain years and will decrease during other years depending on the stock market performance. In the long run, however, you will see an increase in your money. This is exponential growth. Analysts can create models that predict what the overal growth of your funds will be on average, yoar to year We are going to use a model where the average Interest eamed would be 10.3% per your. To calculate this exponential growth, wo return to the exponential formula wa used in Wook 4 y P. (1ryx, where is the interest rate a 12 points say you decide to start saving for retirement when you are 22. You can only put aside $2.000 that year For right now let's also assume that you never add any other money into the retirement account you just let that 52.000 grow. (This assumption will allow us to compare answers for parts a, b, and c) Using either a table in Excel of an equation, calculate how much money you will have in your retirement account when you are 67 years old. Paste in the table you used or show your work 1.12 points Let's say that when you were 22 you didn't even bother opening a retrement account - you could only save a tiny bit, so what was the point? You are now 32 and are finally starting to hit your stride in your chosen career. You decide now is the time to put aside a bit for retirement. You just bought a new house and you are expecting a baby soon, so you can only afford to put away $5,000. Let's assume you never add any other money into that retirement account. Using a table in Excel or an equation calculate how much money you will have in your retirement account when you are 67 years old. Paste in the table you used or show your work c. 12 points) Now let's look at what could happen if you wait until the age of 42 to save for retirement You thought you had far too little money at the age of 22, and when 32 rolled around you realized you had all the current major life expenses that needed your money more than retirement for some future day But now you are But is that really truo? Lets find out You cannot save enough for retirement by using a savings account in a bank. The average interest rate for a savings account is currently less than 1%. Compare that to the inflation we calculated last week and you will quickly see how much value you lose every year. Instead, retirement funds are often invested in common stocks and bonds. When Investing your retirement funds in stocks, the money wil increase during certain years and will decrease during other years depending on the stock market performance. In the long run, however, you will see an increase in your money. This is exponential growth. Analysts can create models that predict what the overall growth of your funds will be on average, year to year We are going to use a model where the average interest eamed would be 10.3% per year. To calculate this exponential growth, we retum to the exponential formula we used in Week 4 y P. (1+ry"x, where is the interest rate. A. 12 points] Say you decide to start saving for retirement when you are 22. You can only put aside $2.000 that year. For right now let's also assume that you never add any other money into the retirement account - you just let that $2.000 grow. (This assumption will low us to compare answers for parts a, b, and a.) Using other a table in Excel or an equation, calculate how much money you will have in your retirement account when you are 67 years old. Paste in the table you used or show your work b. [2 points] Let's say that when you were 22 you didn't even bother opening a retirement account - you could only save a tiny bit. so what was the point? You are now 32 and are finally starting to hit your stride in your chosen career You decide now is the time to put aside a bit for retirement. You just bought a new house and you are expecting a baby soon, so you can only afford to put away $5,000. Lot's assume you never add any other money into that retirement account. Using a table in Excel an equation, calculate how much money you will have in your retirement account when you are 67 years old. Paste in the table you used or show your work c. 12 points] Now lor's look at what could happen you wait until the age of 42 to save for retirement. You thought you had far too ltde money at the age of 22, and When roled around you realized you had all these current major fe expenses that needed your money more than retirement for some future day But now you are 42 and you're starting to get nervous. You are able to put aside $10,000 to start a retirement fund. Let's assume you never add any other money to the retirement account. Using a table in Excel or an equation calculate how much money you will have in your retirement account when you are 67 years old Paste the tablo you used or show your work a. [2 points) Compare your answers for A, B and C. What percent more do you have for retirement by saving at 22 instead of 32? What percent more do you have for retirement by saving at 22 instead of 427 .. 12 points) How does delaying when you begin to save for retirement effect the amount you have when you retire? What advice would you give to a student fresh out of college who says they can't afford" to start saving for retirement until they pay off their student loans, save for a house, accumulate more wealth otc.? (Keep in mind that in the examples above we assumed no further contributions to the retrement fund In reality, you will be able to contribute more and more each year as you start to eam more ) Discuss your answers to these questions in a thoughtfully writen paragraph (if you write a one sentence answer you will receive zero points for the problem.)