Question

A worker wants to set aside some money for retirement, hoping to live off the interest income. If the interest rate is 8% and the worker wishes to draw interest of $2,000 per year, how much should the worker save before retirement

Answer 1

Answer:

$25,000

Explanation:

Assuming it is to be perpetuity. Amount to be saved = P/I

Amount to be saved = Annual interest amount / Annual interest rate

Amount to be saved = $2,000/8%

Amount to be saved = $2,000/0.08

Amount to be saved = $25,000

So, the worker should save $25,000 before retirement if he wishes to draw interest of $2,000 per year.