Which Saver Ends Up with More Money Saver A spends money par

Which Saver Ends Up with More Money?

Saver A spends money partying for 8 years, then opens a tax-deferred retirement account earning 12% at age 26 and invest $150/month for the next 40 years.

Saver B invests $150/month for 8 years in a tax-deferred account earning 12% and saves NOTHING for the next 40 years.

Prepare a comparative table in Excel and supporting schedules of the amount saved by Saver A and Saver B

Please, provide the excel document for me MasonHuo@googlemail.com

Solution

Although both A and B save exact the same amount in absolute terms ($150*12*40), however, retirement fund of B will be more due to time value of money. B saves earlier and hence is able to have a greater amount of retirment fund

A retirement Fund after 48 years = FV(0.12/12,480,150,0,0) = $17,64,716

B retirment fund after 40 years = FV(0.12/12,480,150,0,0) = $17,64,716

B retirment fund after 48 years = FV(0.12/12,96,1764716,0) = $45,86,978