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Understanding the Impact of Compounding There are many reasons why people don't save: I dont have any extra money. I promise to start next year.

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Understanding the Impact of Compounding There are many reasons why people don't save: "I dont have any extra money." "I promise to start next year." "I have $100.... what will that do?" "I'd rather pay extra on my bills and get those taken care of first." Many people who did establish a retirement plan have found that, years into their plan, they made three mistakes: - They started too late. - They put away too little. - They invested too conservatively. And these pitfalis are magnified when you consider compound interest. Consider the compound interert effect in the following two scenarios. (Note: In your calculations, use cither the formula or the financial calculator. Round your answers to the nearest cent.) Alex, age 30, is starting his savings plan this year by putting away $1,050,00 at the end of every year until he reaches oge 65 . He will deposit this money at his local savings and loen at an interest rate of 6%. Based on the information provided, by the time Alex turns 65 , he will have Becky, age 35, is starting her savings plan this year by putting away $1,050.00 at the end of every year until she reaches age 65 . 5 the Will deposit this money at her local savings and loan at an interest rate of 6%. The compounding factor is 111.430 . Based on the information provided, by the time Becky turns 65 , she will have Alex started his investment program five years earlier than Becky and invested a total of 5 during those extra years. By the time Alex turns 65 , he will have accumulated more than Becky

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