When it comes time to retire how many people would like to have a nest egg that is 2 or 3 or even 4 times larger than what they have? With an answer so obvious allow me to explain how you can make it happen for yourself.
First we'll explain the Rule of 72. If you divide the number 72 by the rate of return on your investments the answer is the number of years it will take to double your money. If you are getting 7% annually then 72 divided by 7 equals a little over 10 so it takes 10 years to double. A 9% return divided into 72 gives us an 8-year time span to double. A 10% return needs only 7 years to double.
Now what return can reasonably be expected in our real world? Over the last 100 years or so the United States stock market has returned 10 to 11% per year on average, depending whose figures one reads. We'll use the figure 10%.
Suppose at age 37 you start saving for retirement. We choose a reasonable sum of 110 dollars a month. In 7 years you notice that you have accumulated 13,200 dollars. Another 7 years go by and you see that you have nearly $40,000. At the end of 21 years you have $93,000. By age 65 you notice that 28 years have gone by and you have $200,000 dollars. The rate of return kept steadily increasing. Those of you with some mathematical leanings will recognize this as an exponential rate and also as compound interest. This website has a good calculator: http://www.tcalc.com/tvwww.dll?Save
Also notice that 28 represents four 7-year spans, time for the first dollars to double four times. Observe that during the first 7-year period you accumulated $13,000, during the 2nd 7-year period $27,000, during the 3rd 7-year period $43,000 and during the 4th period $107,000. During the 4th period 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 as much". You may have figured out where this is going. Just START 7 YEARS EARLIER. Now at the end of 35 years you have $414,000, just for starting sooner. And if you start another 7 years earlier, imagine, $846,000. You accumulate $214,000 during the fifth 7-year period and $432,000 during the sixth 7-year period. Sixteen times and thirty-two times the amount in the first 7-year period. All for the same 110 dollars a month!
Yes, I know. This would require beginning saving at age 23, a very difficult thing to do. I also realize that those people with marginal incomes just don't have money to save and also that younger people usual have lower earnings power and incomes. I'm trying to make the point that to whatever extent you can follow this start-early concept it will pay off handsomely by the time you reach retirement.
Albert Einstein wrote that he believed the most marvelous thing in the universe was compound interest. You can put it to work and double or triple your retirement savings. Save as much as you can, save regularly but most of all start as EARLY as possible.
Play music like you always wanted. Gain the knowledge you need to cut out most of the drudgery of endless practice. Dr. Moloney is a retired Family Practitioner with a lifelong interest in music and teaching. Empower yourself to take charge of your learning by studying his E-book. http://www.musicsimplified.com/
Several days ago, the Commerce Department reported that May's factory... Read More
Are you as good an investor as you think? Do... Read More
The stock market fell sharply Thu and Fri before and... Read More
Non-indexed mutual funds try to keep it secret that actively... Read More
How much are you willing to pay for a tank... Read More
I've been in and interested in the stock market so... Read More
What really controls the economy? Forget interest rates, forget deficits,... Read More
A Business Plan, as all good entrepreneurs starting out in... Read More
Investors are still too slowly realizing what the academics have... Read More
Do you think you need an Investment Advisor? Hold on... Read More
1. Begin investing immediatelyProcrastination is the number one enemy of... Read More
Throughout the discussion of speculation and stability, we emphasized that... Read More
In the simplest of terms, Arbitrage means to exploit price... Read More
When we think of investing we probably conjure images in... Read More
Gearing is where you borrow money to invest. As already... Read More
An Ira is one of the greatest ways to save... Read More
Stock market trading is a fascinating activity.There are so many... Read More
Asset allocation is a critical component of investing success. Both... Read More
RETIREMENT PLAN CONSIDERATIONS are something every small business person needs... Read More
About thirty years ago, statisticians armed with all of their... Read More
One of the most common mistakes made by inexperienced investors... Read More
They're real, but few survive. High risk investing is dangerous... Read More
The word 'investments' is one that most of us are... Read More
The American Jobs Creation Act of 2004 imposed strict new... Read More
Remember the old saying, "never too late to start"? Well,... Read More
Its only been about 5 years since we had major... Read More
The Moving Average Convergence Divergence charts, or MACD charts for... Read More
Based on consistent results I think Buy & Hold should... Read More
Here are some useful tips on investing. When you make... Read More
Seniors on fixed incomes face a unique problem. Where do... Read More
As a followup to a previous column, "Irreconcilable Differences," I... Read More
1. How to Treat Gap Openings A gap up or... Read More
Stock trading strategies are as rampant today, as they were... Read More
1. How to Treat Gap Openings A gap up or... Read More
It is important to note that every smart investor wants... Read More
Some time ago I attended a seminar where participants were... Read More
What CA Needs To Do To Address Issues in FranchisingWe... Read More
If you do not have an investment plan in the... Read More
Pre-1933 Gold Outperforms Today's Gold Bullion...Since 1970, an investment strategy... Read More
Before every protective put trade it is possible to calculate... Read More
I've been in and interested in the stock market so... Read More
You have rowed a boat at some time haven't you?... Read More
The Moving Average Convergence Divergence charts, or MACD charts for... Read More
Many people buy annuities according to their agent's recommendations. However,... Read More
"Financial planners are like dentists: they may occasionally inflict pain,... Read More
Of the 75 million baby boomers nearing retirement today, many... Read More
Here is a sample of the last newsletter:SP500 Last Signal... Read More
With so many financial advisors trying to woo you with... Read More
Investments are scary for some people, especially those who have... Read More
A SEP is a special type of IRA. Under a... Read More
Ask this question to 100 people and you will receive... Read More
If you are looking for a safe investment and you... Read More
Typical day traders and swing traders look for stocks with... Read More
Suggesting the use of a franchise business as a vehicle... Read More
In many respects, Singapore is the Switzerland of Asia.Begun in... Read More
If you've ever listened to Warren Buffett talk about investing,... Read More
How many books have you read about successful traders? How... Read More
Soft dollars, a form of legal kickback, is a sly... Read More
If you are doing your own investing in the stock... Read More
This column has previously discussed "picturing the future that we... Read More
Today, I am going to start a multi-part series about... Read More
Penny stocks and options are high volatility investments that attract... Read More
Here are ten more WISDOM packed GEMS that ooffer very... Read More
FOREX, the term for the FOReign EXchange market, is an... Read More
It caught my attention when I heard an analyst on... Read More
Over the course of the past two months, readers have... Read More
Investing |