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