Assume you want to retire early at age 53. You plan to save using one of the following two strategies: (1) save $3,600 a year in an IRA beginning when you are 28 and ending when you are 53 (25 years) or (2) wait until you are 41 to start saving and then save $7,500 per year for the next 12 years. Assume you will earn the historic stock market average of 12% 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 53 under the two options?
3. Explain the results.
4. If you were to let the savings continue to grow for nine more years (with no further out-of-pocket investments), under each scenario, what will the investments be worth when you are age 62?