Assume that when you are 25 years old you plan to aggressively save for your retirement by contributing $5,000 a year to a tax-sheltered account. A relative of yours tells you to forget about earning 10 percent or more a year because that is very unlikely to happen (which is true). He also tells you that you should not worry too much about whether you earn, for example, 6 or 7 percent, because it will not make a lot of difference in your final wealth. You decide to see for yourself the various results that could occur by doing some calculations.
Calculate the difference between earning 6 percent and earning 7 percent for 20, 30 and 40 years. How would you respond to your relative?