Simple Interest

Question

A retired couple receives $ 14,000 per year from Social Security and an additional $ 18,000 in interest from retirement plans and lifetime savings. They need all of their income to pay expenses including medical bills. What will happen if the interest rate on their retirement plans and lifetime savings decreases significantly?

Answer 1

Since the retired couple uses 100% of their income (SS & retirement/savings interest), a substantial decrease in the interest rate on their retirement plans and savings will cause the growth of these plans diminish. The couple has two options: 1. reduce the amount taken out of the savings account which is not feasible due to the magnitude of bills. 2:Keep taking the same amount of money (18k) from their savings to cover bills but it will not last as long as previously predicted.