What Will Your Savings Grow to in the Future?

How large a nest egg will you have in five years? In 20 years? A quick way to answer that question is to use the so-called “Rule of 72,” which predicts how long it will take for savings or investments to double in value. Here's how it works:

Divide the investment rate you are receiving from your savings or stock portfolio into 72. The answer will equal the number of years it will take your funds to double in value at that rate. For example, at a six percent rate of return it will take your savings 12 years to double in value; a four percent return means your investment will double every 18 years.

Suppose Phil is 16 years from retirement and has $30,000 in an IRA. If the IRA consistently earns nine percent, Phil can estimate that his IRA will double in value twice (72 divided by nine = eight years to double once), reaching $120,000 when he retires.

It's important to consider the effects of inflation on the Rule of 72. In 16 years, $120,000 won't have today's buying power. And except for IRAs, tax-free investments and growth stock, income taxes will affect how fast your investment grows.


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