Here is the scenario: You are sitting at the kitchen table on a Saturday morning and start to think seriously about retirement. You take out your calculator and start banging out some numbers. I have a very basic calculator that I run all of my retirement numbers on. It is solar powered so I never have to worry about running low or even out of battery power. The one that I use at home is a TI-1795 SV (TI =Texas Instruments) that I got at my local Office Max. It cost under $20. Using this simple calculator, you can do some easy math to arrive at how long it will take you to retire.

Easy Math

Ready? Divide 72 by 3 and what is the result? If you got 24, that is the correct answer. So what does that mean? That tells you, if you get a 3% return on an investment, it will take 24 years to double your money. If you divide 72 by 7 then you will get an answer of approximately 10.3. In all of my “what ifs” I always plan on making a 10% return. So when you divide 72 by 10 you get 7.2 years. Hence the name of the rule is the Rule of 72.

So why is this important? It gives you an easy way, although not precise, to calculate when you will have enough money to retire. We’ll get to figuring how much you are going to need in another article, but while I have your attention, let’s add in another number.

Starting with $100,000

Let’s say you have $100,000. You figure that you need $400,000 to retire. If you make 7% on a $100,000 investment, you know you can retire in 20.5 years with $400,000. How did I get that? Take 72 and divide it by 7 to get 10.28 years which will take the $100,000 and double it to $200,000 then it will take another 10.28 years to double the $200,000 to make $400,000.

You might be able to spot something that will cause you to ponder for a moment. In most, if not all of my articles I mention a return of 10%. If you refer back to my article on Investing for Retirement Course 101, take a look at tenet #2 and tenet #3. Tenet #2 – Since I am only 52 years old, I tend to be more aggressive, in my investment choices. Tenet #3 – I also invest outside of the US when things go south here.

Soon, we’ll go back to the charts and show how you can make 10% on your investments.  Until then . . .

Jeremiah John

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