Rule of 72

In the area of financial management, I am pretty weak and too impulsive. I'm easily distracted by shiny objects and pretty things. Must have now! I recently attended a retirement seminar and boy, I really wish I knew this stuff when I was just getting started.   Ok, so I'm eight years away from retirement (eligibility). Well, in dog years, that probably means 56 years. Or in single mom years, maybe never. But it doesn't hurt to be informed or to start planning. The seminar was taught by a retired financial planner who invested very wisely in his younger years and now lectures for fun two months of the year and vacations the rest of the time. Why didn't I think of that?

He gave us this simple rule for handling investments, called "The Rule of 72".
Take the current interest rate and divide it into 72. This approximately equals the number of years it will take to double your money (not taking into account the rate of inflation). So for example, using the current interest rate for a Roth IRA, 8%, your contribution will double approximately every 9 years. How cool is that? And so easy to remember! Being the analytical engineer that I am, I had to see it visually:

Age 20 $5000 (Assuming an 8% Roth IRA)
Age 29 $10,000
Age 38 $20,000
Age 47 $40,000
Age 56 $80,000
Age 65 $160,000

$160,000 at 65 and all tax-free (If invested in the Roth IRA)!!! Not a bad chunk of change when you think of it! There are a lot of investment opportunities out there so you need to do your research. You can see why just dumping your money in a traditional savings account (0.8 - 1.5%) will not yield a great return.  I understand $5000 is a hard to come by at any age, but start small and work your way up to it. From the day you start working, you need to consider planning and putting away for retirement. Unless you want to be the person they carry out on a stretcher!

 I found this pretty nifty Roth IRA calculator online, http://www.planningtips.com/cgi-bin/roth.pl, so plug away and start dreaming about retirement!