| Have you ever wondered how much some of
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| | reinvest your assets. The Rule does not
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| your investments will be worth 10 years
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| | apply if you withdraw any funds.
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| from now? How about 20 years? You can
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| | You can even use this Rule in reverse.
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| easily figure it out without using a
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| | For example, you are 38 years old, and
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| financial calculator. Just use the Rule
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| | you'd like to know how much you'd have to
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| of 72.
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| | invest today to retire a millionaire.
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| Let's say you invested $10,000 in a fixed
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| | Using the same Rule (assuming a
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| annuity earning 6% a year. In 24 years,
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| | retirement age of 65, and an average
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| your assets will be worth about $40,000.
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| | annual return of 8%), here is how it
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| How does it work?
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| | would work:
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| The Rule of 72: Divide the number 72 by
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| | Step One: 72 divided by 8% would signify
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| the interest you earn, and it will give
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| | that your money would double every 9
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| you the number of years it will take for
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| | years.
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| your money to double. Using the above
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| | Step 2: At age 65, you want your assets
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| example, 72 divided by 6 equals 12 years
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| | to be worth $1,000,000, so...
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| for doubling. Since there are two
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| | Step 3: You work in reverse, going back 9
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| doubling periods in 24 years, the
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| | years for every doubling period.
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| original $10,000 would be worth $20,000
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| | $1,000,000 at age 65 (your goal)
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| in 12 years, and $40,000 in 24 years.
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| | $500,000 at age 56 (9 years earlier)
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| Using this same Rule, an investment
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| | $250,000 at age 47,
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| earning 8% would double in about 9 years,
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| | $125,000 at age 38 (lump sum)
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| and a 12% investment would double in 6
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| | If you invest $125,000 at 8% until age 65
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| years.
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| | (before taxes), you would have about
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| You need to remember that a 6% interest
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| | $1,000,000 at retirement. This amount
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| rate in a Certificate of Deposit would
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| | would change, of course, if you invested
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| not work as well as a 6% annuity. A CD
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| | more than $125,000, or if the interest
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| earning 6% would leave an investor
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| | were higher, or better still, you started
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| approximately 4% after taxes. The Rule of
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| | investing a little sooner than age 38.
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| 72 would only apply to an after-tax
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| | Depending on your goals, and your age,
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| yield. A 6% annuity would be
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| | you could retire earlier or later than
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| tax-deferred; therefore, the entire 6%
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| | age 65. You don't have to invest a lump
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| would be counted.
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| | sum to retire comfortably. Just have a
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| The Rule of 72 works best with fixed
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| | goal, and a systematic investment plan,
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| investments, or those with a fairly
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| | and your retirement needs will be
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| stable return. Also, it only works if you
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| | accomplished.
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