Gordan and Lisa estimate they will have need $1,875,000 in 40 years for their retirement years. If they can earn 8 percent annually on their funds, how much do they need to save annually?


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David Shabazi answered

So they both need $1,875,000, and are able to earn 8% of that.

First we need to calculate how much 8% of $1,875,000 is. To do this, convert the percent  into a decimal (0.08) or fraction (8/100 = 2/25) and then multiply that by $1,875,000.

0.08 * 1,875,000 = $150,000

Gordan and Lisa are able to earn $150,000 out of the $1,875,000 that they need. The rest of the money required is the amount that they should save up. How do we figure that out? Subtract that 8% that they earned ($150,000) from $1,875,000.

1,875,000 - 150,000 = $1,725,000

So Gordan and Lisa need to save $1,725,000 annually.

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