How much money am I likely to have at retirement?
For many of us the ability to calculate how much we will have at retirement or some stage in the future can be difficult.
One way to do this is to use the Rule of 72.
The ‘Rule of 72’ is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return you hope to achieve, you can get a rough estimate of how many years it will take for the initial investment to duplicate itself.
As an example let’s make the following assumptions.
- A couple aged 45
- Retiring at age 65
- Have a combined superannuation account balance of $210,000
- Expected average return of 7%
Base on this the balance of $210,000 will double in 10.2 years (72/7) or when this couple are 55. Assuming they work to 65 and achieve the same average return the original $210,000 will double twice and the balance could be closer to $840,000.
Further to that, assume super contributions are also added to this over the 20 years and the balance is likely to exceed $1,000,000 at retirement.
The balance in this example is simply achieved through compound interest and has no strategy or planning overlay. Imagine what you could achieve with a structured financial plan that helps you reduce your debt, build your super and non-super investments while creating a nest egg to generate a tax free income in retirement.
I appreciate this is quite a simple calculation and doesn’t take into consideration extended periods of high growth or negative growth but it does give some idea on what clients should be aiming at in the lead up to retirement.
Please select the following link to view a useful article explaining the rule – Double Your Money With This Simple Financial Rule.
If of course you would like to discuss this in more detail please don’t hesitate to contact us.
Reference – Article ‘Double Your Money With This Simple Rule’ taken from website ‘The Balance” https://www.thebalance.com/what-s-the-rule-of-72-how-can-it-help-me-double-my-money-453756. Article by Paula Pant – July 8th 2017