STUPID MISTAKE #7
Failure to Use Your Four Powerful Friends
A friend is a present you give yourself.
—ROBERT LOUIS STEVENSON
He had earned a steady, above-average income his entire career. Now, in his early fifties, Jeremy was finally taking time to assess what he had to show for all his hard work—and what he needed to do in order to ensure that he’d have the financial freedom to retire in the next fifteen or twenty years.
Over the years, Jeremy had tucked away extra money in a money market fund whenever his cash flow allowed. He had built up a contingency reserve of $4,200, which he tried to leave alone. He considered this his “fallback” reserve in case of a job loss or other expensive emergency.
He carried balances totaling $2,600 on three of his four credit cards and tried to pay at least $250 each month on those balances. But Jeremy admitted that he often found himself putting additional purchases on his credit cards, which made paying down the balances more difficult. He also owed approximately $5,500 on a car loan, which brought his total consumer debt to $8,100.
Jeremy’s company offered a 401(k), to which he contributed 5 percent of his $50,000 gross income, or $2,500 per year. A few years ago he had borrowed from the plan to take a special vacation, and he now was almost finished making the required payback of the loan.
“Let’s See What’s Holding You Back”
The first thing I did was to commend Jeremy on the things he was doing right. He had built a rainy-day reserve that he kept set aside, yet available, in a money-market fund. He was making a concerted effort to pay down his consumer debt. And, mindful of retiring someday, he was contributing to his company 401(k).
“Now,” I told him, “let’s see what’s holding you back.” Among other things, we underscored the following:
First, while his contingency reserve was a good beginning, it needed shoring up. At his present level of monthly expenses, Jeremy’s rainy-day fund would provide only about six weeks’ living expenses if he were to lose his job. He needed to build and maintain this reserve at a level that could see him through at least three months of potential unemployment.
Second, while Jeremy was not overly abusing his lines of consumer credit, his credit card balances and car loan totaled 16 percent of his gross income—more than three times our recommended maximum consumer debt of 5 percent. He was flushing away hundreds of dollars each month in expensive debt service, money that he could and should have been pouring into his savings programs.
Third, while participation in his company’s 401(k) was commendable, Jeremy was failing to utilize the plan’s full potential. He’d made the cardinal error of borrowing from his retirement savings, which had dramatically reduced his balance as well as his potential for compounding. And while his plan allowed for a maximum annual contribution of up to 15 percent of gross salary, Jeremy was contributing only 5 percent. By not maxing out his 401(k) contributions, he was saving $5,000 less per year than the plan allowed.
The math quickly revealed why this third shortcoming was a big one. At only 5 percent of his gross income of $50,000, Jeremy was sending just $208.33 to his 401(k) each month. Invested in a portfolio of mutual funds averaging 8 percent earnings over the next fifteen years, and assuming no increases in his monthly contributions, his new contributions would compound to a total of $72,090. But if Jeremy were to begin to contribute the full 15 percent allowed by his plan, $416.67 per month, his new contributions would grow to a total of $144,184 (again, assuming no increases in pay or monthly contributions). The difference: an additional $72,094 in his retirement fund fifteen years from now. And as contribution limits increase over time, he can enhance these results even more.
Your Four Powerful Friends
“You have four powerful financial friends,” I assured Jeremy. “They’re there for you, but you’re not using them. They can make you wealthy over time, but you’ve got to put them to work.”
Over the next several months, as Jeremy began to make adjustments to his personal finances, he came to know and love his four powerful friends. For the next fifteen years, until the day he hoped to retire, these friends would help make the dramatic difference between whether he would strive or thrive in his retirement years.
As I have emphasized throughout this book, you and I are mostly on our own when it comes to building economic security for our families and for our future. It is up to us to take positive steps now to overcome any Stupid Mistakes of the past and to steer clear of them in the future. It is up to us to get out and stay out of the consumer-debt trap, to build an accessible contingency reserve for life’s inevitable rainy days, and to save and invest a healthy portion of every dollar for future needs and dreams.
No one else will take these steps for us. We’re on our own. This is a key financial reality we all must face, and the sooner the better.
We can reject that reality, pine passively for the illusive Someday, and arrive at our retirement years dependent upon government, children, or charity. Or we can embrace the reality, determine the best ways to work with and make the most of it, and dramatically enhance our chances of becoming financially free to make our retirement years the most active, productive, and fulfilling time of our lives.
I think I know which choice you’ve made. And, assuming you’ve chosen the path to financial freedom, I have more encouraging news for you—news that will give you even greater hope of reaching your destination in sound fiscal shape: While you are on your own, you are not alone.
Huh?
You read that correctly. It’s not a contradiction.
Yes, it’s up to you to assume the initiative, take the right steps, and maintain the discipline to see your plan through. No one will force you to do these important things, and no one will do them for you. Indeed, you are on your own. But on the other hand, like Jeremy, you have powerful friends who can help make your financial goal a reality.
I’m not talking about your parents, who may or may not have any money to leave to you.
Not Bill Gates, who has money but probably didn’t remember you in his will.
And not your rich, eccentric Uncle Fester, who intends to leave his money to his cats.
Before you meet your powerful friends, let me illustrate their value by comparing your financial life to a football game. You’re a running back on a football team (so, humor me here). It’s your responsibility to take the ball and run through the opposition toward the goal line. The opposing players are drooling to stop you, even lay some serious pain on you. But (thank God) you are not the only player on your team. You have some powerful teammates, hard-hitting blockers who can help spring you loose for significant gains and game-winning touchdowns. You’re carrying the ball on your own, but as you run toward the goal line, you are not alone.
Now relate that metaphor to the game of personal finance.
You’re journeying toward a goal. Opposing forces want to stop you and even lay some financial pain on you. But you have powerful “teammates” who can help you make the most of your efforts to build financial independence. Working together, they can take a fistful of your dollars and help them grow and multiply. They can help turn what may seem a small puddle of savings into a full reservoir to fund a thriving retirement.
When it comes to building financial freedom, these teammates are going to be your four best friends.
The Power of Priority
Priority is a watchword that conveys moving something from the bottom of a to-do list to the top. It changes an action step from an afterthought (“Someday”) to one of utmost importance (“Today!”). If you’re a husband, cleaning the garage may be at the bottom of your list. But your dear wife has grown tired of having to scale boxes and yard tools to get to her car, and this morning she announced that cleaning the garage had better be your top priority this weekend. If you want to stay fed and out of the doghouse, you’d better make a paradigm shift, and fast. Suddenly you move cleaning the garage from the bottom to the top of your to-do list. You shift this task from afterthought to priority. The garage gets cleaned (finally!), and you’re assured of another meal indoors.
That’s the power of priority. It gets things done that we may have previously considered undesirable, unimportant, or impossible. We touched upon this powerful principle earlier when we talked about the importance of making savings and investing a top-priority habit instead of a financial afterthought. Instead of paying all of your other bills and seeing if there’s anything left for savings at the end of the pay period, the power of priority puts a permanent paradigm shift into play: You designate a percentage of your income for savings and investment and set up an automatic transfer program to make sure you “pay yourself first.” In doing so, you move savings and investment from the bottom of the list to the top. The only financial practice that should top regular savings and investment is that of charitable giving.
When I speak to groups about personal finance, I occasionally share a tongue-in-cheek statement that actually underscores this key financial principle. “I’ll say this slowly because I want you to write down every word,” I tell them. Everyone puts pen to paper, poised to record the coming nugget of wisdom. “Here it is: The odds of making a successful investment are dramatically increased . . . if you have some money to invest in the first place.”
By the time I complete that last phrase, most of the group pause momentarily and glance up from their notes, as if wondering whether they should finish writing. Then, invariably, they smile as they realize that, indeed, we can’t put money to work for the future if we don’t first set aside the money to put to work. We cannot afford to save only whenever we have some extra cash because—be honest—how often does that happen?
We have to build the seed capital. Regularly and systematically, early and often.
That’s where paying ourselves first comes in.
The power of priority.
Seed money won’t just come along Someday. Successful investors create seed money by having it skimmed from their income automatically, before they can spend it on anything else. This moves savings from the bottom of the to-do list to the top. Employer-sponsored programs such as 401(k)s are ideal, tax-advantaged ways to make this happen. In addition, you can arrange for automatic transfers from your paycheck or your checking account to your personal IRA or other savings and investment program.
How much should you be saving?
As much as you can, which is more than you think you can.
To review Stupid Mistake #2, your initial savings priority should be to build and maintain a contingency reserve of three to six months’ living expenses. A good place for this reserve is a money-market fund. Once you have a good start in building that reserve, you’ll also want to begin saving toward medium-term expenses such as a down payment on your first house or your children’s college education.
Your biggest future expense, however, is likely to be your retirement. Considering increased life spans as well as advances in health and medicine, it’s possible that you could live in retirement mode (translation: mostly self-supporting) for twenty-five, thirty, or even forty years. That’s a long time to make your money last. To build a nest egg large enough to live out your days in financial independence, it is vital that you put the power of priority to work for you. Begin now, no matter how young or old you are, to set aside a portion of every paycheck for your future. I recommend the following as a good, minimum rule of thumb:
• Up to age thirty-five, steer at least 5 percent of your gross income to retirement savings.
• Between ages thirty-five and forty-five, save at least 10 percent for retirement.
• From ages forty-five to fifty-five, save at least 15 percent of your gross income for retirement.
• After age fifty-five, save at least 20 percent for retirement.
Such a time line should allow you to save for short- and medium-term needs in your early years, while also getting a good start on saving for the long term. Gradually, as you complete your contingency reserve, make the down payment on your first house, and move your children out of the nest, you can save more aggressively for retirement. But every working person should be saving something for retirement, no matter how young he or she may be. The sooner you begin, the better off you’re likely to be as retirement approaches.
If you do not harness the power of priority in your savings and investment practices, chances are you’ll experience difficulty building sufficient seed capital to invest for your future. But if you begin today to make savings one of your top financial priorities, you’ll have the money to put to work. That’s where your next powerful friend comes into play.
The Power of Tax-Advantaged Saving
“I’m from the IRS, and I’m here to help you.”
Yeah, right. If you ever hear that, it will be in your dreams.
Yet, difficult as it may be to believe, our government has actually stepped forward to help us when it comes to saving for retirement. (It’s their way of admitting that there’s no way Social Security will meet all of our retirement-income needs and that we’d better save on our own—and fast.) Be still, my heart; Uncle Sam actually wants to encourage us to save for the long term by giving us some generous tax breaks for doing so.
Tax-advantaged saving means that (1) your contribution to your savings plan is tax-deductible in the year you make it or (2) earnings on your investments are tax-deferred until you withdraw funds or (3) both. One or both of these benefits give us the significant advantage of keeping more of our money compounding for us in lieu of sending it to Washington to buy $10,000 toilet seats.
With tax-advantaged savings vehicles such as 401(k)s, 403(b)s, SEPIRAs, and some traditional IRAs, the money we put into these programs can be deducted from our gross income at tax time. (The much-ballyhooed Roth IRA does not allow you to deduct your contribution, but it offers other benefits that make it a strong retirement savings vehicle in its own right. We’ll review those benefits in a later chapter.)
Through tax deductibility, our government actually encourages us to save for retirement by, in effect, subsidizing our contributions to these long-term savings vehicles. If your income level puts you in the 15 percent marginal tax bracket and you authorize your employer to direct a total of $3,000 of your gross salary to your company 401(k), you will pay $450 less in federal income tax than if you do not make the tax-deductible contribution. In effect, you’ll contribute just $2,550; Uncle Sam tosses in $450 for you because of your tax savings. If you’re in the 28 percent marginal bracket and you decide to set aside $6,000, you will effectively contribute $4,320 while the government contributes $1,680 in tax savings. The more you contribute up to the legal limit, the more you can deduct from your income tax. It’s like being paid to save—yet, amazingly, hundreds of thousands of men and women who have such plans available do not take advantage of them or contribute the full amount they are entitled to save.
An even more powerful tax advantage is that of tax deferral. Annuities, 401(k)s, 403(b)s, SEP-IRAs, Roth IRAs, and traditional IRAs all allow us to postpone paying taxes on their investment earnings until we begin drawing income from them.
Consider tax deferral a way to “turbocharge” the already-powerful effect of compounding on your savings and investments. Because compounding earns interest on principal and interest on interest, sheltering your earnings from annual taxation means you can keep more money growing for you over time.
First you exercise the power of priority to set a healthy percentage of your income aside for the future. Then you take Uncle Sam up on the power of tax-advantaged saving in order to legally avoid taxes and keep more of your money working for you. Now it’s time for your third powerful financial friend . . .
The Power of Equity Investing
Equity investing enables you to invest a portion of your saved money for growth over time, enhancing its opportunity to surpass the growth you would have achieved had you left it all in a low-earning savings account or money-market fund.
To help you become comfortable with this powerful friend, it’s important to understand the difference between saving and investing.
Saving is the act of setting money aside from your income, hopefully in the high-priority, automatic fashion we’ve been recommending. It’s the process of deliberately placing funds into a separate account for future use, whether it’s a bank savings account, a money market fund, or a retirement savings plan. Investing, on the other hand, is the act of taking the process to the next level. Investing puts your savings to work for growth potentially beyond the minimal interest you would earn if you were to leave your savings alone in a savings account or money market fund.
While it’s wise to keep the equivalent of three to six months’ expenses in cash or cash equivalents for emergencies (i.e., nonretirement savings accounts or, preferably, money-market funds), keeping all of your savings in such conservative accounts will not likely give you the kind of growth you need in order to meet your goals. This is why most financial advisers recommend that a good portion of your other (noncontingency-reserve) savings, whether inside or outside of tax-advantaged retirement plans, be invested in equities such as stocks or stock mutual funds.
A quick glance at the history of the U.S. stock market shows us why.
Stocks for the Long Run
The past couple of years have seen stock market corrections and even a “bear market” as a result of several economic forces. These include (1) an overheated economy and its accompanying “irrational exuberance,” which drove many stocks to irrationally high prices in relation to their underlying values; (2) an overprotective Federal Reserve, which raised interest rates too high and too swiftly in order to cool the economy’s growth—actions that led to a sharp economic and stock market downturn; and (3) the tragic terrorist attacks that temporarily rocked consumer confidence. Equity markets do go up and down in response to world events, economic conditions, and investor sentiment, which is precisely why you do not want to put money into the stock market that you may need within the next five to ten years.
However, a look at the big picture shows that the stock market is still one of the best places to invest your long-term capital—money that you won’t need for the next five to ten years or more.
In 1998, Dr. Jeremy J. Siegel, professor of finance at the Wharton School of the University of Pennsylvania, published a definitive study in which he tracked the return of stocks versus other benchmarks over the preceding 195 years, from 1802 through 1997. This period, of course, included both bull and bear markets as well as the crash of 1929, the ensuing Great Depression, the crash of 1987, and several major market “corrections.” Siegel’s watershed conclusion, recounted in his book Stocks for the Long Run (McGraw-Hill, 1998), is that “over the last century, accumulations in stocks have always outperformed other financial assets for the patient investor” (emphasis added).
Let’s pretend that your great-great-granddad had $1 to invest from his savings in 1802. He invested for the long run, wanting to pass his dollar and its earnings along to his great-great-grandchild (you). He had five choices: gold, the Consumer Price Index (an investment that keeps pace with inflation), short-term bonds, long-term bonds, or an average stock. What would each investment be worth today? Well, according to Siegel:
• $1 in gold would now be worth $11.17.
• $1 in the Consumer Price Index would be worth $13.37.
• $1 in short-term bonds would be worth $3,679.
• $1 in long-term bonds would be worth $10,744.
• $1 invested in the average stock would be worth $7.47 million.
Where do you wish your great-great-granddad had put his dollar? If he had “played it safe” and bought gold, you would inherit $11.17, enough for a big night for two at McDonald’s. If he had purchased long-term bonds, you’d probably have close to $10,744, perhaps enough for a modest used car. However, according to Siegel’s study, had Great-Great-Granddad bought shares of an average stock, you would likely inherit nearly $7.5 million, enough for . . . well, one can always dream, right?
That’s the trend of the U.S. stock market over 195 years. Despite its inevitable ups and downs and a few binges and purges, the market’s longterm trend has been up—dramatically so.
What about more recent time periods? Consider the following . . .
From 1928 to 1997, which includes the cataclysmic 1929 crash and the Great Depression, the average compounded annual return of the stock market was 11.2 percent. Long-term bonds averaged 5.2 percent.
For the fifty-year period following World War II (1947 to 1997), the average compounded annual return was 12.2 percent, despite the crash of October 1987 and several other corrections. Long-term bonds returned an average of 6.1 percent.
Between 1982 and 1997, a period that included the ’87 crash, stocks averaged 16.7 percent; long-term bonds averaged only 8.7 percent.
You May Be Making Stupid Mistake #7 If . . .
• you aren’t treating saving for the future as one of your top financial priorities
• you’re over age thirty-five and are not saving at least 10 percent of your gross annual income for retirement
• you have a 401(k)- or 403(b)-type plan but are not contributing the full percentage of your salary the plan allows
• you do not have at least a portion of your long-term savings invested for growth in stocks or stock mutual funds (equity investments)
• you’ve pulled money out of your long-term savings and investments to spend on more immediate things
An important caveat is that Siegel’s study did not include the enormously profitable years of 1998 and 1999 or, in contrast, the stomach-lurching market sell-offs of more recent years. As we’ve emphasized, over the short term, stocks go up and they go down, and they are not the place to put your contingency or shorter-term savings. But it’s heartening to see that over the long haul, equity investments have far surpassed most other common investments, even those that some may consider to be safer. The conclusion we can draw from Siegel’s study is that, while there are never any guarantees in the investment world, history gives us good reason to believe that stocks will continue to be a good place for a portion of our long-term money.
We’ll look at some easy ways to tap the power of equity investing—and some common mistakes to avoid—in the next chapter.
The Power of Compounding
Now it starts to get fun.
John D. Rockefeller once called compound interest the eighth wonder of the world, and the numbers truly bear him out. With the power of compounding at work, modest sums of money, invested over a period of time, can grow to surprisingly large amounts.
To illustrate, consider the Incredible Game Guy scenario.
A smiling game-show host shows up at your door and shoves a microphone in your face. Behind him, TV cameras record the magic moment. “Congratulations, Mr. and Mrs. Smith,” Game Guy begins (which already makes you suspicious because your name isn’t Smith). “You have won the grand prize in our Incredible Game Guy contest! You have a choice. You can either take a lump sum of one hundred thousand dollars, or you can take one penny! What . . . is your choice?”
It’s an easy decision, and besides, you want these people off your porch. “We’ll take the hundred thou—” you start to say.
But Game Guy interrupts. “Oh, I forgot to turn my cue card. Your second choice is one penny, doubled each day for thirty days! What . . . is your choice?”
Still easy, you reason. One penny doubled equals two cents. Two cents doubled equals four cents. . . . What would the penny option come to? Ten or twenty bucks?
“We’ll still take the hundred thou—” you begin again, but your twelveyear-old son, who seems to keep a calculator glued to his palm, interrupts.
“Mom, Dad, wait.” He punches in some numbers. “Take the penny,” he whispers.
“Son, we know what we’re doing,” you tell him. But Junior punches the numbers again to verify, then shows you the display. Suddenly you’re speechless. You try to speak, but the words just don’t come.
So your son says aloud, “We’ll take the penny.”
Thirty days later, the Incredible Game Guy returns to your door. He hands you a check representing the result of a single penny doubled each day for thirty days. Sure enough, the check is made out for . . . $10,737,418.24.
It sounds incredible, I know. But do the math and you’ll find that Junior was right. The secret is the power of compounding—not only the eighth wonder of the world, but also your most powerful friend when it comes to building your nest egg. That’s because compounding earns you interest not only on the principal you invest, but also interest on the interest. Granted, no investor is likely to earn 100 percent daily return on an investment over thirty days. But I share the Incredible Game Guy story to show how even small amounts, invested over time, can grow to almost unbelievable totals through the power of compounding.
For a more real-life scenario, think of Harry, whose parents taught him the wisdom of working with his four powerful friends. Just out of college and starting his career, Harry begins setting aside $100 each month. It’s not much, but just you wait. If he puts that money to work in a tax-deferred investment program that averages 12 percent per year (the U.S. stock market average from 1947 through 1997), and never contributes more than $100 per month for the rest of his working life, Harry’s little $100 monthly savings will be worth $1,176,477 when he reaches sixty-two.
Not too shabby for only $100 per month! Of course, Harry could do far better than that because he’s going to increase his monthly savings commitment as his income increases. But his story shows us the incredible power of compound interest over time, given regular top-priority infusions of seed capital—even modest amounts.
To make compounding even more enticing, compare how much Harry will actually contribute from his own pocket with how much of his nest egg will result from compound interest. At $100 per month over the forty years between ages twenty-two and sixty-two, Harry will set aside a total of $48,000 from his income. Thus, of his total $1,176,477 nest egg at age sixtytwo, $1,128,477 is free money—the result of the power of compounding.
When Friends Work Together . . .
We’ve introduced your four powerful financial friends. Now let’s see how the powers of priority, tax-advantaged saving, equity investing, and compounding can work together to help you build the level of financial independence you desire for your retirement years.
Figure 1 shows the potential growth of the savings you invest in equity investments if those investments average 8 percent annual return, taxdeferred. Figure 2 illustrates a 10 percent average annual return on your investments, and Figure 3 shows what can happen if your investments average 12 percent. Each table illustrates the growth potential of lumpsum contributions, monthly contributions, and annual contributions over various periods of time.
Let’s look at Figure 1 for a moment to illustrate the possibilities if your tax-deferred investments average 8 percent annually over time. The “lump sum” section shows that if you presently have $40,000 in a taxdeferred retirement plan, your $40,000 can grow to $86,357 in ten years and to $186,438 in twenty years. The “monthly” section illustrates that having $400 per month automatically transferred to your retirement plan could result in $138,415 in fifteen years and $380,411 in twenty-five years. The “annual” section shows that a $5,000 annual contribution can grow to $247,115 in twenty years and to $611,729 in thirty years.
But those are only examples. Play with the variables in each table by entering your own numbers and totaling the possibilities over ten, fifteen, twenty, twenty-five, and thirty years—depending on how old you are and how many years you foresee working before you shift gears to retirement. You may already have a lump sum working for you in existing retirement plans and hope to continue adding to the plans on a monthly or annual basis. Add the totals and see what happens over different time periods at an 8 percent, 10 percent, and 12 percent average annual compounded return.
By adjusting the lump sums, monthly and annual deposits, length of time for compounding, and projected rates of return, you’ll begin to see the incredible potential of the powers of priority, tax-advantaged saving, equity investing, and compounding in reaching your financial goals. With determination and diligence on your part, combined with the help of your four powerful friends, you can look forward to a future of financial independence!
8% Annualized Compounded Growth (Tax-Deferred)
LUMP SUM |
10 years |
15 years |
20 years |
25 years |
30 years |
$2,500 |
5,397 |
7,930 |
11,652 |
17,121 |
25,157 |
$5,000 |
10,795 |
15,861 |
23,305 |
34,242 |
50,313 |
$10,000 |
21, 589 |
31,722 |
46,610 |
68,485 |
100,627 |
$20,000 |
43,179 |
63,443 |
93,219 |
136,970 |
201,253 |
$30,000 |
64,768 |
95,165 |
139,829 |
205,454 |
301,880 |
$40,000 |
86,357 |
126,887 |
186,438 |
273,939 |
402,506 |
$50,000 |
107,946 |
158,608 |
233,048 |
342,424 |
503,133 |
$60,000 |
129,536 |
190,330 |
279,657 |
410,909 |
603,759 |
$70,000 |
151,125 |
222,052 |
326,267 |
479,393 |
704,386 |
$80,000 |
172,714 |
253,774 |
372,877 |
547,878 |
805,013 |
$90,000 |
194,303 |
285,495 |
419,486 |
616,363 |
905,639 |
$100,000 |
215,893 |
317,217 |
466,096 |
684,848 |
1,006,266 |
MONTHLY |
10 years |
15 years |
20 years |
25 years |
30 years |
$200 |
36,589 |
69,208 |
117,804 |
190,205 |
298,072 |
$300 |
54,884 |
103,811 |
176,706 |
285,308 |
447,108 |
$400 |
73,178 |
138,415 |
235,608 |
380,411 |
596,144 |
$500 |
91,473 |
173,019 |
294,510 |
475,513 |
745,180 |
$600 |
109,768 |
207,623 |
353,412 |
570,616 |
894,216 |
$700 |
128,062 |
242,227 |
412,314 |
665,718 |
1,043,252 |
$800 |
146,357 |
276,831 |
471,216 |
760,821 |
1,192,288 |
$900 |
164,651 |
311,434 |
530,118 |
855,924 |
1,341,324 |
$1,000 |
182,946 |
346,038 |
589,020 |
951,026 |
1,490,359 |
ANNUAL |
10 years |
15 years |
20 years |
25 years |
30 years |
$1,000 |
15,645 |
29,324 |
49,423 |
78,954 |
122,346 |
$2,000 |
31,291 |
58,649 |
98,846 |
157,909 |
244,692 |
$4,000 |
62,582 |
117,297 |
197,692 |
315,818 |
489,383 |
$5,000 |
78,227 |
146,621 |
247,115 |
394,772 |
611,729 |
$7,500 |
117,341 |
219,932 |
370,672 |
592,158 |
917,594 |
$10,000 |
156,455 |
293,243 |
494,229 |
789,544 |
1,223,459 |
$15,000 |
234,682 |
439,864 |
741,344 |
1,184,316 |
1,835,188 |
$20,000 |
312,910 |
586,486 |
988,458 |
1,579,088 |
2,446,917 |
10% Annualized Compounded Growth (Tax-Deferred)
LUMP SUM |
10 years |
15 years |
20 years |
25 years |
30 years |
$2,500 |
6,484 |
10,443 |
16,818 |
27,087 |
43,624 |
$5,000 |
12,969 |
20,886 |
33,638 |
54,174 |
87,247 |
$10,000 |
25,937 |
41,773 |
67,275 |
108,347 |
174,494 |
$20,000 |
51,875 |
83,545 |
134,550 |
216,694 |
348,988 |
$30,000 |
77,812 |
125,317 |
201,825 |
325,041 |
523,482 |
$40,000 |
103,750 |
167,090 |
269,100 |
433,388 |
697,976 |
$50,000 |
129,687 |
208,862 |
336,375 |
541,735 |
872,470 |
$60,000 |
155,625 |
250,635 |
403,650 |
650,082 |
1,046,964 |
$70,000 |
181,562 |
292,407 |
470,925 |
758,429 |
1,221,458 |
$80,000 |
207,499 |
334,180 |
538,200 |
866,776 |
1,395,952 |
$90,000 |
233,437 |
375,952 |
605,475 |
975,124 |
1,570,446 |
$100,000 |
259,374 |
417,725 |
672,750 |
1,083,471 |
1,744,940 |
MONTHLY |
10 years |
15 years |
20 years |
25 years |
30 years |
$200 |
40,969 |
82,894 |
151,874 |
265,367 |
452,098 |
$300 |
61,453 |
124,341 |
227,810 |
398,050 |
678,146 |
$400 |
81,938 |
165,788 |
303,747 |
530,733 |
904,195 |
$500 |
102,422 |
207,235 |
379,684 |
663,416 |
1,130,244 |
$600 |
122,907 |
248,682 |
455,621 |
796,100 |
1,356,293 |
$700 |
143,391 |
290,129 |
531,558 |
928,783 |
1,582,342 |
$800 |
163,876 |
331,576 |
607,495 |
1,061,467 |
1,808,390 |
$900 |
184,360 |
373,023 |
683,432 |
1,194,150 |
2,034,439 |
$1,000 |
204,845 |
414,470 |
759,369 |
1,326,833 |
2,260,488 |
ANNUAL |
10 years |
15 years |
20 years |
25 years |
30 years |
$1,000 |
17,531 |
34,950 |
63,003 |
108,182 |
180,943 |
$2,000 |
35,062 |
69,899 |
126,005 |
216,364 |
361,887 |
$4,000 |
70,125 |
139,799 |
252,010 |
432,727 |
723,774 |
$5,000 |
87,656 |
174,749 |
315,013 |
540,909 |
904,717 |
$7,500 |
131,484 |
262,123 |
472,519 |
811,363 |
1,357,076 |
$10,000 |
175,312 |
349,497 |
630,025 |
1,081,818 |
1,809,434 |
$15,000 |
262,968 |
524,246 |
945,037 |
1,622,726 |
2,714,151 |
$20,000 |
350,623 |
698,995 |
1,260,050 |
2,163,635 |
3,618,869 |
12% Annualized Compounded Growth (Tax-Deferred)
LUMP SUM |
10 years |
15 years |
20 years |
25 years |
30 years |
$2,500 |
7,765 |
13,684 |
24,116 |
42,500 |
74,900 |
$5,000 |
15,529 |
27,368 |
48,231 |
85,000 |
149,800 |
$10,000 |
31,058 |
54,736 |
96,463 |
170,001 |
299,599 |
$20,000 |
62,117 |
109,471 |
192,926 |
340,001 |
599,198 |
$30,000 |
93,175 |
164,207 |
289,389 |
510,002 |
898,798 |
$40,000 |
124,234 |
218,943 |
385,852 |
680,003 |
1,198,397 |
$50,000 |
155,292 |
273,678 |
482,315 |
850,003 |
1,497,996 |
$60,000 |
186,351 |
328,414 |
578,778 |
1,020,004 |
1,797,595 |
$70,000 |
217,409 |
383,150 |
675,241 |
1,190,005 |
2,097,195 |
$80,000 |
248,468 |
437,885 |
771,703 |
1,360,005 |
2,396,393 |
$90,000 |
279,526 |
492,621 |
868,166 |
1,530,006 |
2,696,393 |
$100,000 |
310,585 |
547,357 |
964,629 |
1,700,006 |
2,995,992 |
MONTHLY |
10 years |
15 years |
20 years |
25 years |
30 years |
$200 |
46,008 |
99,916 |
197,851 |
375,769 |
698,993 |
$300 |
69,012 |
149,874 |
296,777 |
563,654 |
1,048,489 |
$400 |
92,015 |
199,832 |
395,702 |
751,539 |
1,397,986 |
$500 |
115,019 |
249,790 |
494,628 |
939,423 |
1,747,482 |
$600 |
138,023 |
299,748 |
593,553 |
1,127,308 |
2,096,978 |
$700 |
161,027 |
349,706 |
692,479 |
1,315,193 |
2,446,475 |
$800 |
184,031 |
399,664 |
791,404 |
1,503,077 |
2,795,971 |
$900 |
207,035 |
449,622 |
890,330 |
1,690,962 |
3,145,468 |
$1,000 |
230,039 |
499,580 |
989,255 |
1,878,847 |
3,494,964 |
ANNUAL |
10 years |
15 years |
20 years |
25 years |
30 years |
$1,000 |
19,655 |
41,753 |
90,345 |
166,334 |
300,253 |
$2,000 |
42,415 |
88,980 |
171,044 |
315,668 |
570,545 |
$4,000 |
81,724 |
172,487 |
332,441 |
614,336 |
1,201,010 |
$5,000 |
110,696 |
230,661 |
442,079 |
814,670 |
1,471,303 |
$7,500 |
159,833 |
335,044 |
643,826 |
1,188,005 |
2,147,034 |
$10,000 |
196,546 |
417,533 |
806,987 |
1,493,339 |
2,702,926 |
$15,000 |
294,819 |
626,299 |
1,210,481 |
2,240,009 |
4,054,389 |
$20,000 |
393,092 |
835,066 |
1,613,975 |
2,986,679 |
5,405,852 |