Joe and Bill are the same age and starting their careers.Each plans to retire at age 65 and each wants to have $600000 in his RRSP account by then.If they both get seven percent annual return on their RRSP savings,which one will be closer to reaching his goal?
A)Bill if he starts saving $800 a month when he is 45 years old
B)Joe if he starts saving $200 a month when he is 25 years old
C)Bill if he starts saving $1000 a month when he is 45 years old
D)Joe if he starts saving $150 a month when he is 20 years old

Question

Quizplus · Accepted Answer

Compound interest is the key concept in this problem. Joe has a longer time to save, so through the power of compound interest, even though he saves less each month, his money will grow more over time. By starting at age 20, Joe has 45 years to save before retiring. Bill, on the other hand, only has 20 years to save before retirement. Therefore, despite saving more per month, Bill will not be able to accumulate the same amount of wealth by the time he retires.

Joe and Bill Are the Same Age and Starting Their