The Rule of 72

How long will it take your 401k to double?

I was meeting with a participant this week that had some questions on his 401k. He had done a decent job saving for retirement. He was 35 and had saved just over $100,000 for his retirement.

He asked me, “What can I reasonable expect to have at retirement?” That’s when I got to explain to him the “Rule of 72”.

And I’m going to explain it to you too.

But first, let me ask you a question.

The question is, how do you as a 401k or 403b participant become a 401k superhero to your future self?

That is the question, and these videos will give you the answers. Hey, I’m Jonathon Schultheiss and welcome to the Becoming a 401k superhero videos.

Applying the Rule of 72 is a great way to measure if you are becoming a 401k Superhero to your future self.

Let me explain how it works.

The Rule of 72 is 72 divided by the interest rate, is the number of years it should take your money to double.

In other words, if you earn a 10% return, your money should double in 7.2 year. 72 divided by 10 is 7.2. If you do a 7.2% return, your money should double every 10 years.

This participant has saved around $100,000. I rounded it to $100,000 because I can do math better with round numbers.

If he were to earn a hypothetical 7.2% rate of return, knowing that the historical averages of the market is a little better and we’re being slightly conservative, we felt good using this number.

If he is 35, his account could potentially double 3 time by the age of 65.

So that means that if he was 35 and had $100,000, that by the time he turned 45, ten years later, he should potentially have $200,000.

Then 10 years later at 55, he could potentially have $400,000, and by age 65, if it doubled again, it could potentially be $800,000.

Here’s the other thing, this doesn’t take into consideration his contributions. Between him and his employer, he was getting $7,000 a year into his 401k.

30 years worth of $7,000 would be an additional $210,000.

So his current balance could become $800,000 and his additional contributions could be another $210k. He could potentially have over $1m for retirement.

Now this may not be 100% accurate, and this is more of a back of the napkin exercise here. But this was able to help this person see the vision of what they could have at retirement if they just stay the course.

And when you see the potential and you stay focused, you are truly becoming a 401k Superhero to your future self.

If you want to have a conversation about your retirement and how the Rule of 72 might work for you, then click on the link below and lets schedule a time to talk about your specific situation today!