Question

Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire _____ rather than _____ and earn a _____ rate of interest, then you can deposit a smaller lump sum today.

Answer 1

Answer:

The answers are:

• later (at an older age)
• sooner (younger)
• higher

Explanation:

The value of money changes over time, and we expect it to increase as times goes on. If we invest $100 today, we expect that invested be worth more in one year, and even more in ten years.

So if we want to retire and have $1 million in our retirement savings fund, the amount we need to save today varies depending on 2 variables:

1. The age at which we will retire; the younger we plan to retire, the less money our retirement fund will have earned, so we need to make a larger deposit today.
2. The interest rate our money can earn; the higher the interest we expect to earn , the smaller our deposit.