Sunday, January 1, 2012

Estimating Your Retirement Nest Egg

Even if retirement is decades away, it is good to get an estimate of how much your nest egg will be worth. Time is the best friend of investing since saving for 40 years versus saving for 30 years can make a significant difference. One of the best retirement calculators I have found is located here:

Here is an example:

annual salary: $30,000
current 401k balance: $1,000
retirement age: 65
annual rate of return: 8%
expected annual salary increase: 3%
employer match: 50%
employer maximum for match: 6%

After 43 years of savings, your 401k would be worth $1,144,337!
If you wait 10 years and start investing at age 32, the amount would be $483,063.

Another great method for estimating is the "Rule of 72". This helps you to determine how long it will take for your money to double. If you make a return of 10% on your money, divide 72 by 10 and you get 7.2 years for your money to double. Let's say you have $10,000 invested at age 30 and you can get a 10% return on your money. It will double every 10 years, following this pattern:

age 30 $10,000
age 37.2 $20,000
age 44.4 $40,000
age 51.6 $80,000
age 58.8 $160,000
age 66 $320,000
age 73.2 $640,000

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