Question

Due to health reasons, Dave is considering early retirement. He currently has $700,000 in a self-managed retirement fund. He thinks he will need $40,000 per year during retirement. He intends to invest his retirement in a low-risk mutual fund which return 1.5% per year. How many years can he live off this retirement fund without the need to look for a job?

Answer 1

Dave's retirement fund will not be sufficient to cover his expenses indefinitely, and he will need to look for a job or consider alternative sources of income to meet his retirement expenses.

Step-by-step explanation:

To determine how many years Dave can live off his retirement fund, we need to calculate how long his fund will last based on his annual expenses and the investment returns.

Dave has $700,000 in his retirement fund and intends to withdraw $40,000 per year. His low-risk mutual fund returns 1.5% per year.

1. Calculate the annual interest income: $700,000 * 1.5% = $10,500
2. Subtract the annual expenses from the interest income: $10,500 - $40,000 = -$29,500
3. Since the interest income is less than the annual expenses, Dave's retirement fund will not be sufficient to cover his expenses indefinitely.

In this scenario, Dave will need to look for a job or consider alternative sources of income to meet his retirement expenses.