What amount does John need to save annually to reach his $1 million retirement goal in 25 years?

To determine the annual savings amount John needs to reach a $1 million retirement goal in 25 years, several factors come into play, including interest rate, time, and compounding.

The correct answer indicates that John needs to save $8,740 each year, which reflects appropriate calculations considering a realistic expected rate of return on his investments over the 25 years. When evaluating the options, the approach typically involves using the future value of a series formula, which helps to estimate how much saving annually would grow to reach a certain financial target after a specified time frame, accounting for compounding interest.

Assuming an average annual return rate, such as the common expectation of around 7% for a diversified investment portfolio, the calculations show that saving closer to $8,740 per year would lead to the target amount after 25 years. This amount strikes a balance between ensuring sufficient growth through compound interest while being a feasible annual savings figure.

In contrast, other amounts suggested may not yield the $1 million goal when adjusted for the time value of money. For instance, $10,000 annually would significantly exceed the necessary contributions, and lower figures like $5,000 may require unrealistic rates of return to reach the objective within the time limit. Thus,