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
Rule of 72. If you divide number 72 by rate of return on your investments answer is 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 last 100 years or so United States stock market has returned 10 to 11% per year on average, depending whose figures one reads. We'll use 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 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 first dollars to double four times. Observe that during first 7-year period you accumulated $13,000, during 2nd 7-year period $27,000, during 3rd 7-year period $43,000 and during 4th period $107,000. During 4th period you grew eight times as much as in first period. All without changing amount saved, $110 per month.
