Fuzzy Math Recovery (winners announced!)

dw_savings2Many thanks to all those who participated in last week's pop quiz!

Congratulations to Sophia and Kristina, our two winners!

Although several other readers came close—Stephanie, Amanda, Kateh, Jordana, Debi, Beth, Di, Jamie—we regret to report that fuzzy math derailed almost everyone.We take credit for some of the confusion, as two of the questions could be answered in different ways.

Luckily, this presents a fabulous "teaching moment," as the moms say.

  1. There are two ways to answer question 1:

    1. If you made only the minimum payment of 2.5% on a $10,000 balance at 19.99% interest, it would take 403 months—or about 33.5 years to pay it off. Use this minimum payment calculator on bankrate.com.
    2. BUT, if you read the question literally, and assumed a fixed monthly payment of $250, it would take 67 months, or about 5.5 years to pay it down.
  2. What's the diff? The minimum payment is $250 (2.5% of $10,000)—but only at the start. It gets lower as you go: 2.5% of $9916 is only $247, etc. That why paying only the minimum turns into a 33-year jail sentence.

  3. Adding an additional payment each year would shave about 5 years, 8 months off your mortgage, assuming it was a 30-year fixed loan for $160,000 @ 6.5%. Answers varied for those who used other terms. Use this mortgage calculator on bankrate.com.
  4. Most people did the basic math correctly on this one ($50,000 is indeed 4% of $1.25 million), but then forgot to factor in inflation.
  5. Assuming a 3% yearly rate of inflation, a $50,000 income would translate about $121,500. Thus, the total amount you'd need to save would be in the $2-3 million range—Sophia and Kristina came closest to getting this right. Use this retirement savings calculator on .