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Retirement Planning >> Retirement Investing and The Rule of 72

Have you heard of the Rule of 72 and its tremendous predictive power to illustrate the snowballing effect of compound interest and it's interesting. Here's how it works: take the number of "72" and mentally divide it by the absolute value of an interest rate to quickly work out the number of years compound interest need to double your money. So if you had invested $10,000 at a steady 6% each year, it will take you 12 years to grow that money to $20,000.

Rule of 72 in Retirement Planning

This nifty rule can be also be utilised to halve your buying power in a set number of years. If you plan to retire in 14 years, you have more than a passing interest in knowing what inflation rate will result in $1,000 today (in 2006) only being able to buy $500 worth of goods and services in 2020. To do so all you have to do is take 72 and divide by 14. The answer is 5.14 , so the inflation rate we're looking for is about five percent. per annum.

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