Business Degree Certification Practice Test

Which action will reduce the amount to deposit today to achieve a future savings goal?

1. Invest in a different account paying a higher rate of interest

2. Invest in a different account paying a lower rate of interest

3. Retire later

4. Retire sooner

The correct answer is: Retire later

To reduce the amount required to deposit today in order to achieve a future savings goal, investing in an account that offers a higher rate of interest is key. Higher interest rates enhance the potential growth of savings over time, allowing for a lower principal amount to be invested upfront while still reaching the desired future value. Retiring later is advantageous because it extends the investment period. This means your savings will have more time to grow, benefiting from compound interest. By delaying retirement, both the contributions and the time for the money to earn interest increase, effectively reducing the amount that needs to be deposited today to meet future goals. In contrast, retiring sooner would necessitate a larger initial deposit to reach the same savings goal in a shorter timeframe, given less time for the money to grow through interest. Similarly, choosing an account with a lower interest rate would yield less growth, requiring a larger deposit to achieve the same target. Therefore, the action of retiring later optimally aligns with the goal of reducing today's necessary deposit amount.