Rule of 72
The "rule of 72" is a method of estimating how long it will take compounding interest to double an investment. So there are two variables in growing money with compound interest: "amount of money or investment" and " interest rate".
"Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it."
How many doubling times do you have in your lifetime?
Investing only $10,000 at age 29, by age 65 you will have:
$40,000 at 4%
$160,000 at 8%
$640,000 at 12%
"Money makes money. And the money that money makes, makes money."
Rule of 72 and the concept of compounding interest can be used in both traditional and wealth strategies. Each strategy has its own unique characteristics.
The most common characteristics of traditional tax deferred retirement strategies are:
1. Exposure to market uncertainty
2. Withdrawing your money during retirement years
3. Taxed income upon withdrawl at an unknown tax rate
4. Running out of money during retirement years
The most common characteristics of wealth strategies are:
1. Participation in market gains without exposure to market loss
2. Using other people's money as opposed to withdrawing yours
3. Never taxed income during distribution (if structured properly)
4. lifetime income or distribution (if structured properly)
So it is not only about how much you are saving, it is about where you are saving and also about taxation. We, at Nikala Insurance Services, specialize in educating our clients, help them understand their options and plan for their financial future.