The Strongest Force in the Universe - Part 2

You likely have realized by now that I’m quite enamored with compound interest. If that wasn’t apparent here’s a second perspective on its impressive powers.

What if I told you that if you invested $5000 per year for 40 years ($200,000 total) you could then withdraw ~$113,000 each year for the following 30 years?  Sounds too good to be true? Here are the numbers:

• From age 25-65 if you contributed $5000/year that achieved a 10% annual rate of return it would grow to $2.2M

• From age 65-95, using that $2.2M, you can withdraw $112,904/year while earning a 3% annual rate of return (as you are taking distributions the account is invested more conservatively)

If 10% seems too unrealistic I’ve provided a table showing average annual rates of return ranging from 6%-9%, and what the annual withdraws would be assuming the balance earns an average of 3%.

As you can see from the table above, even at an average annual rate of return of 6% your $5000/year investment for 40 years (age 25-65) could still provide you with an annual income of $39,479 for 30 years (age 65-95).

The key, as it always is with compound interest, is time. Those of you with kids in their late teens and early twenties - it is imperative they both understand and take advantage of this principle! However for those of you who may have less time, your best options are to increase the amount you contribute and invest more aggressively for a potential higher rate of return.  

In summary, it’s important that you have the strongest force in the universe working for you. If you, your family, or friends would like to talk more about how you can harness this power please call and schedule an appointment.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The hypothetical examples listed above are not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing. Investing involves risk including loss of principal.  No strategy assures success or protects against loss. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.