to live off interest, suppose retirement.acct earns 7.5% interest compounded monthly for 30 years, and upon retirement the ending balance rolls into a simple interest earning 6%. The simple interest acct must earn $12,000/year to be sufficient to live off of. How much do I need to invest in the acct today to achieve this goal? (use simple interest formula first)
Not sure this formula would work, but can't figure it out:
A=P(1+r/n)^nt (^ = exponent)
2006-11-14 02:46:17 · 2 answers · asked by veryintrigued 2 in Business & Finance ➔ Personal Finance
Microsoft Excel can help with these kinds of calculations. Though, an interest formula like this fails to take into account future additions to the principle of your retirement account. Most people take some of each paycheck and put it into a retirement account rather than depositing a lump sum and forgetting about it.
Don't forget to factor in inflation and taxes somehow!
2006-11-14 02:58:18 · answer #1 · answered by IT Pro 6 · 0⤊ 1⤋
Working backwards:
To get $12000/yr at 6% interest we need $200,000 lumpsum amount.
To accumulate $200,000 in 30 yrs at 7.5% compound interest you need to deposit approx. $22,900 initially now. It is assumed that you do not add anything later for 30 yrs. Also I assume that there will be no liablity of taxes.
2006-11-17 02:30:57 · answer #2 · answered by StraightDrive 6 · 0⤊ 0⤋