Millennial’s, did you know that if you divide an interest rate by 72, you can see how many years it will take to double your money?
If you are earning 5% per year, that means your money would double every 14.4 years (72/5).
If you are earning 10%, you can expect your money to double every 7.2 years. (72/10)
And if you leave your money in the bank and you are lucky enough to be earning .5%… it would take 144 years to double your money!!!
Our parents were able to earn double digits in their bank accounts, which meant they could double their money with relative ease and safety. Today those “risk-free” options do not exist.
This rule of 72, also works in reverse. If you have debt, you can see how long it will take to double your balance… which is a very bad thing! [This won’t take into payments, but still important nonetheless}
For today’s millennials, many of them think the prospects of accumulating $1,000,000 is out of reach.
Wells Fargo found that “64% of millennials say $1 million is out of reach” according to a recent study as reported by time.com
If a 30 year old today is able to accumulate $1,000,000 by the time they are 66 and assuming inflation runs at 4%… That same $1,000,000 will have lost 75% of its purchasing power.
Expressed another way, if our hypothetical inflation assumption holds true. That would be the equivalent of retiring on $250,000 today! Going back to the rule of 72 it would take 18 years for our purchasing power to be cut in half.
Even worse… many “experts” suggest only taking out 4% per year to fund your retirement.
This would mean the millennial who’s 30 today and retires 36 years from now, will have the equivalent of $10,000 / year of purchasing power in today’s dollars!!!
Some of you might be saying… “4% inflation sounds high, compared to what the Federal Reserve is projecting”. To that I would implore you to read my article entitled “How the Government Lies About Inflation”
If you are a millennial, please don’t put retirement planning off any longer. We have several great options available and we have advisors who can help get you on track.
If you know a millennial please share this article with them. Too often I hear baby boomers tell me they wish they knew these things when they were younger.
Editor’s note: The rule of 72 is a mathematical concept and does not guarantee investment results nor functions as a predictor of how an investment will perform. It is an approximation of the impact of a targeted rate of return. Investments are subject to fluctuating returns and there is no assurance that any investment will double in value.