“The safest way to double your money is to fold it over and put it in your pocket.” – Kin Hubbard
Over the next few weeks, I am going to write a few articles that focus on saving and investing for retirement. Before I get into these topics, I want revisit an article I wrote 2 years ago: Investing Tip – The Rule of 72.
How To Quickly Double Your Money
I hope you didn’t land on this article in hopes of earning immediate 100% returns on your money (doubling your money). I don’t specialize in schemes to “get rich quick.” Instead, I will show you how to calculate HOW LONG it will take to double your money. That, in a nutshell, is the Rule of 72.
How It Works – The Rule of 72
Divide 72 by your expected return.
For example, if you can average a 10% return (annually) on your investments:
72/10 = 7.2 years
You will double your money in 7.2 years.
If you can only average an annual return of 2%:
72/2 = 36 years
Your money will double in 36 years.
How Can This Help Me Plan for Retirement?
Using the Rule of 72 can help you estimate (1) how much money you’ll have in retirement and (2) what kind of returns you need to ensure a comfortable retirement. It can also be used as MOTIVATION to SAVE MONEY NOW (because you know you won’t save more later).
Tell me if this is motivating…
What if you can save $10,000 when you’re 20 years old AND get an average annual return of 8%? Using the Rule of 72:
72/8 = 9 years
Age 20 – $10,000
Age 29 – $20,000
Age 38 – $40,000
Age 47 – $80,000
Age 56 – $160,000
Age 65 – $320,000
Age 74 – $640,000
Age 83 – $1,280,000
Don’t you want to be a millionaire? Can you save $10,000 now? Have you heard of the Rule of 72?
***I realize this example makes you a “millionaire” at age 83, which is later than most people want to retire. Keep in mind, though, that this example only requires an investment of $10,000 and assumes there are no other contributions or investments.