Retirement And Time Value Of Money

A recent article at Bankrate.com discusses how saving earlier in your IRA can mean big money at retirement, which we hope you already know this. As the article discusses, many people make their IRA deposit right before April 15th each year when taxes are due. However, if the deposit were made a year earlier, the difference under Bankrate's assumptions would be $113,985 at retirement. The assumptions used in the article are a $5,500 annual deposit at 8 percent for 40 years. Check for yourself that if the deposits are at the end of the period, the future value is $1,242,810.85 and if the deposits are an annuity due, the future value is $1,538,795.72. So, Bankrate's article presents a set of calculations that we hope you are already familiar with. Of course, the future value will increase another $30,000 or so if you make your deposits on January 1st of each year, 15 months before the last date April 15th of the following year.