Compounding Interest

I have talked about the dangers of inflation on your retirement so talking to your investment advisor about long-term returns is important. Saving a high percentage of income is only half the battle. You can’t just put fat stacks of cash under your mattress and expect to get rich. The interest rate you earn long-term is also very important. Consider this, if you can earn 10% a year, it takes approximately seven years for your money to double. In another seven years, it would double again. Wait for another seven, and it doubles again. This is called the Rule of 72. It works this way take the interest rate you are receiving and divide it into 72 the answer is the number of years your investments will double. So, in our example 72 divided by 10 equals 7.2.

Let’s say you manage to save $100,000 by 40 and you earn 10% a year. How much would you have when you retired at 61? Your investment would double three times over the 21 years you left it. So, you’ve actually have $800,000. ($100,000 becomes $200,000 which doubles to $400,000, and then doubles one more time to make $800,000). If you could hold off another seven years or until you are 68, you could have yourself a cool $1.6 million. Not too shabby when you consider that you only had $100,000 28 years ago. That’s the power of compounding interest, it works to help you. You have got to be invested to get ahead and you will need a good financial advisor to do that.

I retired at 60, and I had some ideas about what retirement would look like, but I found that my retirement did not go as planned.

If you retire at age 60, like me, you could easily have 30 years or more of retirement life ahead as I hope to have. When I was 30, I could not have predicted where I would be at age 60? It is the same is true for our retirement years, And that’s okay, You can do all the planning and forecasting you want, but you’ll never be able to predict what will happen to you personally, professionally, relationship-wise, or financially over the next 30 or more years.

In early retirement, I thought I was going to exercise more, read more, travel more, and work less. I do exercise more, read less, and travel less but I work more, all for good reason. All I can suggest is that when you retire, be ready to be flexible and able to make updates to your overall financial plan. My advice keep your planning simple. Spend less, earn more, play more, and invest all you can. That’s it. There’s power in that message.