Money And Time Value

Money Can Work For You

Individual A
Age 22
Contributions into an IRA (Individual Retirement Account)
Annual Payment: $5,000
Contributes for 8 years and stops
Total Contribution: $40,000 ($5,000 each year x 8 years) and they let the money stay in the account until age 67

Individual B
Still wanting to party. Knowing they have nothing but time on their side. Saving right now when they can buy those new shoes (5th pair in the last few months). You know what I am talking about. Well they start 8 years later. The same year (Individual A stops contributing)
Age 30
Contributions into an IRA (Individual Retirement Account)
Annual Payment: $5,000
Contribute for 38 years and stops (Age 67)
Total Contribution: $190.000 ($5,000 each year x 38 years)

Well what we call “common sense” would say – Individual B has to have a lot more money saved. After all, they contributed $190,000 and Individual A contributed $40,000.

So at age 67, let’s look at the results:

Individual A has: $1,845,710
Individual B has: $1,701,330

What? No way. How is that possible?

Yes, even though Individual B contributed $150,000 more money than Individual A, they actually ended up with less money in the amount of $144,380.

INCREDIBLE!!!

Folks that is a difference of $294,380 (The $150,000 that Individual A did not contribute + $144,380 more at the end).

This example was taken from the book: How Money Works – A Common Sense Guide To Financial Success. Created by Primerica

The wording is my view.

Disclaimer: They hypothetical 9% nominal rate of return, compounded monthly, and tax-deferred accumulation shown for both IRA accounts are not guaranteed or intended to demonstrate the performance of any actual investment. Unlike actual investments, the accounts show a constant rate of return without any fees or charges. Any tax-deductible contributions are taxed and tax-deferred growth may be taxed upon withdrawal. Withdrawals prior to age 59 1/2 may be subject to a 10% penalty tax. Assumes payments are made at the beginnings off each year. Investing entails risk, including loss of principal. Shares, when redeemed, may be worth more or less than their original value.

Note: Information was taken from the book: How money works: A common sense guide to Financial Success by Primerica

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