A couple nearing retirement plans to increase their retirement savings by investing an equal amount of $20,000 in Roth IRAs each year end, beginning this year. The expected return on the IRAs is 7%. They plan to invest for 10 years. The amount the couple expects to have at the end of ten years is closest to:

Question

Quizplus · Accepted Answer

The couple is making an annual investment of $20,000 at the end of each year for 10 years with an expected return of 7%. This is a case of calculating the future value of an annuity. The formula for the future value of an annuity is FV = P * [((1 + r)^n - 1) / r], where P is the payment amount, r is the annual interest rate, and n is the number of periods. Plugging in the values: FV = $20,000 * [((1 + 0.07)^10 - 1) / 0.07] ≈ $20,000 * 13.4867 ≈ $189,743.42.

A Couple Nearing Retirement Plans to Increase Their Retirement Savings