How much should you deposit at the end of each month into an investment account that pays \( 7.5 \% \) compounded monthly to have \( \$ 1 \) million when you retire in 42 years? How much of the \( \$ 1 \) million comes from interest? (1) Click the icon to view some finance formulas.

To achieve your goal of having \( \$1,000,000 \) after 42 years with an interest rate of \( 7.5\% \) compounded monthly, you can use the future value of an ordinary annuity formula, which is \( FV = P \times \frac{(1 + r)^n - 1}{r} \). Here, \( FV \) is the future value (\$1,000,000), \( P \) is the monthly deposit, \( r \) is the monthly interest rate (7.5% / 12), and \( n \) is the total number of deposits (42 years × 12 months). Using these inputs, you'll calculate that you need to deposit approximately \( \$670.55 \) per month. To figure out the interest earned, subtract the total deposits (\$670.55 × 504 months, which is about \$337,768.20) from \$1,000,000, leading to around \$662,231.80 coming from interest. To maximize the benefit of compound interest, consider starting early and being consistent with your deposits. It’s crucial not to skip or reduce contributions, as even small changes can dramatically impact your total accumulation over decades. Also, consider setting up automated transfers; this way, you pay yourself first and avoid the temptation to skip months! Also, researching more about retirement planning tools can provide you with various methodologies to manage your savings effectively. Books on personal finance, retirement strategies, or investment basics can greatly enhance your understanding of how to make your money work for you! Consider titles like “The Simple Path to Wealth” by JL Collins, which offers practical insights for building wealth and preparing for retirement.