money and interest?

Question

how much money would i have to put in the bank and use just the interest in order to pay $25,000.00 in payments per year ??

Answer 1

It will depend on the interest - but be carefull of something else - Interest is generally considered ordinary income for tax purposes. This means you must deduct the taxes, then make your payments with the rest. For most people, deduct about 25% to be safe, right off the top. So, 4% interest is more like 3%, 5% is more like 3.75%, etc.

Getting the interest isn't too hard. I recommend ING direct, but there are several others. Currently its not hard to get 5% as someone mentioned, but thats before taxes, so you keep about 3.75%.

To calculate how much money you need, apply a bit of math.

3.75% is 0.0375 in decimal (100% is 1.000).

Take the amount you want and divide by the percentage (in decimal) to get the value. Example:

25000 / 0.0375 = 666,666 Dollars.

Two warnings. The interest rate could change, so if you need this kind of money reliably, consider buying CDs, I'd recommend an assortment of 6 month, 1 year, 2 year, etc as needed. When one completes, buy a new 2yr or 5 year CD.

Second, this will not keep up with inflation. If all you want is 25k per year every year, it will work, but you will probably want more than 25k each year, as the buying power of 25k (of the dollar itself) falls over time. So, while the number of dollars generated from the investment may be 25k ten years from now, it won't buy what 25k used to.

In order to do that, you need to have enough to save to grow for the future, and you need to estimate inflation - I recommend a figure of 4-5% to be safe.

The math then gets more complicated. Here is what 2 million would get you in this example:

2M * 0.0375 = 75k before taxes
keep 25k, save another 50k, so now you have 2.05M...

2.05M * 0.375 = 76.875k before taxes
Take 25k*105% = 25k*1.05 = 26.25k. Save the rest...
keep taking 25k out (adjusted for inflation) and save the rest... Forever.

To prove this works, look at what 26.25k (the money paid a year later) would be worth. It would be worth 1.05x less (5%) than the money a year before it, so just divide 26.25k by 1.05 to calculate what it would buy, its BUYING POWER.

26.25 / 1.05 = 25k

It works out, because we used the opposite math to determine how much money to take out.

This will generate 25k forever. And, not just 25k, but the BUYING POWER of 25k (as long as inflation doesn't get out of hand).

So, the answer depends on two questions - Is it 25k in payments per year before taxes or after (probably after), and do the payments need to keep with inflation. Are you paying back a loan, or are you planning to live off the money? If you pay back a loan, inflation adjustments are generally not needed, but if you plan to use this as an income to live on, then you will AT LEAST want to compensate for inflation. The money needed then is appoximately:

500k (assuming no taxes, 5% return)
700k (rounded earlier number, after taxes, 5% pretax return)
2M (approxiate amount needed to compensate for 5% inflation and 5% taxes)

Answer 2

Yes. They are politicians. They lie. They cheat. They take lobbyist money. This sounds bad to some, but lobbyist and "special interests" exist to represent people. For example, if you, Joe Bloe want to talk to Obama, you can't just call him up or write him a letter. He'll never see the letter, and you'll never reach him by phone. If you write a long, hand-written, heart-felt letter and mail it in, it will be read by one of his lowest aides, possibly an eager teenager looking to get into politics at the ground level. You'll get a canned reply with a generic phrase like, "I'll keep your views in mind should this issue come before me in the future." Trust me. I've written letters to politicians and gotten the EXACT SAME verbatim response to two different letters!! So how do you get Mr. Obama's attention (or any other politician)? You need money and numbers. Like-minded people get together and form special interest groups (e.g. the AMA or AARP). This way, they can say, we have X million members who believe in this bill and support it, so much so that they've donated $XXX thousand dollars. Then, a certain amount of money will get a certain amount of time and attention of a politician. Less money might get you a phone call or a meeting with a top aide. More money might get you face time with Obama himself. This is how the real world works. "Special interests" are merely groups of people who represent a common cause simply b/c those people as individuals will never get their message through to the politician, so they unite.

Answer 3

you put US$818000 at 3% yearly compound interest and get US$25000 at the end of the year .

Answer 4

Given you can get around 5% right now, it'll be $500k

Answer 5

$180,000.00 USD

Top 5 Answerer.