Get Wealthy With the Rule of 72
When it comes time to retire how many people would like tohave a nest egg that is 2 or 3 or even 4 times larger thanwhat they have? With an answer so obvious allow me toexplain how you can make it happen for yourself.
First we'll explain the Rule of 72. If you divide thenumber 72 by the rate of return on your investments theanswer is the number of years it will take to double yourmoney. If you are getting 7% annually then 72 divided by 7equals a little over 10 so it takes 10 years to double. A9% return divided into 72 gives us an 8-year time span todouble. A 10% return needs only 7 years to double.
Now what return can reasonably be expected in our realworld? Over the last 100 years or so the United States stockmarket has returned 10 to 11% per year on average, dependingwhose figures one reads. We'll use the figure 10%.
Suppose at age 37 you start saving for retirement. Wechoose a reasonable sum of 110 dollars a month. In 7 yearsyou notice that you have accumulated 13,200 dollars. Another7 years go by and you see that you have nearly $40,000. Atthe end of 21 years you have $93,000. By age 65 you noticethat 28 years have gone by and you have $200,000 dollars.The rate of return kept steadily increasing. Those of youwith some mathematical leanings will recognize this as anexponential rate and also as compound interest. Thiswebsite has a good calculator:http://www.tcalc.com/tvwww.dll?Save
Also notice that 28 represents four 7-year spans, time forthe first dollars to double four times. Observe that duringthe first 7-year period you accumulated $13,000, during the2nd 7-year period $27,000, during the 3rd 7-year period$43,000 and during the 4th period $107,000. During the 4thperiod you grew eight times as much as in the first period.All without changing the amount saved, $110 per month.
You think to yourself "I wish I could have twice asmuch". You may have figured out where this is going. JustSTART 7 YEARS EARLIER. Now at the end of 35 years you have$414,000, just for starting sooner. And if you start another7 years earlier, imagine, $846,000. You accumulate $214,000during the fifth 7-year period and $432,000 during the sixth7-year period. Sixteen times and thirty-two times the amountin the first 7-year period. All for the same 110 dollars amonth!
Yes, I know. This would require beginning saving at age23, a very difficult thing to do. I also realize that thosepeople with marginal incomes just don't have money to saveand also that younger people usual have lower earnings powerand incomes. I'm trying to make the point that to whateverextent you can follow this start-early concept it will payoff handsomely by the time you reach retirement.
Albert Einstein wrote that he believed the most marvelousthing in the universe was compound interest. You can put itto work and double or triple your retirement savings. Saveas much as you can, save regularly but most of all start asEARLY as possible.
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