Jan is a 35-year-old individual who plans to retire at age 65. Between now and then $4000 is paid annually into her IRA account, which is anticipated to pay 5% compounded annually. How much will be in the account upon Jan’s retirement?
To calculate how much will be in Jan's IRA account upon her retirement, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the final amount of money in the account
P = the principal amount (annual payment into the IRA account)
r = the annual interest rate (expressed as a decimal)
n = the number of times that interest is compounded per year
t = the number of years
In this case, the annual payment into the IRA account is $4000, the interest rate is 5% (0.05 as a decimal), the interest is compounded annually (n = 1), and the number of years is 65 - 35 = 30.
Plugging the values into the formula, we have:
A = 4000(1 + 0.05/1)^(1*30)
A = 4000(1.05)^30
Calculating this expression, we find:
A ≈ 4000(1.05)^30 ≈ $12,389.67
Therefore, there would be approximately $12,389.67 in Jan's IRA account upon her retirement.