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