You annually invest $1,500 in an individual retirement account (IRA) starting at the age of 20 and make the contributions for 10 years. Your twin sister does the same starting at age 30 and makes the contributions for 30 years. Both of you earn 7 percent annually on your investment.
Who has the larger amount at age 60?
(Problems 2 through 4 illustrate the basic elements of pension plans. A sum of money is systematically set aside. It earns interest so that by retirement a considerable amount has been accumulated. Then the retired person draws on the fund until it is exhausted, or until death occurs, in which case the remainder of the fund becomes part of the estate. Of course, while the retired person draws on the fund, the remaining principal continues to earn interest.)
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