Question

Asha feels she needs $45,000 per year in retirement. If she receives $30,000 a year from Social Security, at what interest rate must Asha invest her $250,000 of savings for her total income to be at least $45,000 per year

Answer 1

If Asha already receives $30,000 a year and she wants to receive at least $45,000 a year, she needs to receive an extra $15,000 per year.

She will invest a total of $250,000.

Let's use the formula below to calculate the interest rate needed for a year:

`I=P\cdot r`

Where I is the interest generated after a year, P is the principal (amount invested) and r is the interest rate.

So, for I = 15000 and P = 250000, we have:

`\begin{gathered} 15000=250000\cdot r \\ r=(15000)/(250000) \\ r=0.06 \end{gathered}`

Therefore the interest rate is 0.06 or 6% per year.