Bob Brinker's Money Talk taught me two rules to follow when planning money for the future. The first is the 4% rule. It says that any amount in a balanced investment will last forever as long as you withdraw no more that 4% a year. So what this means that if you have $100k in an investment you could take $4k a year and spend it -- and do that forever. If you had $100k in cash under your bed and took out $4k a year, it would last 25 years. Interest earned and share appreciation in an investment would yield decent returns. So that $100k would last much longer. So if you wanted a retirement income of $40k a year, you would need $1,000,000 invested to make it last virtually forever.
The second is the rule of 72. You take an interest or appreciation percentage and divide it into 72 and you get a number that is about the number of years it takes for the investment to double. So 10% interest will result in your savings to double in about 7 years (72 divided by seven is roughly 10). Or if you want to know what percentage of appreciation you need for your investment to double in a span of time, take the span of time and divide it into 72 and you will have the time it will take to double. So if you want your money to double in 12 years, you divide 12 into 72 and get 6, which is the % amount it will take for your investment to double in 12 years. A investment that earns 36% every year will double every 2 years -- 36 divided into 72 equals 2 -- years. If your current checking account interest rate is 1%, it will take 72 years for that amount to double.
Play with the numbers and you will realize it takes a ton of money to provide you with a decent retirement income. Look at how much your investment earns and you will see it takes a decent percentage rate of increase to really make investments grow.
I was taught the "rule of 72" in the mid-'80's, and have passed it on to quite a few others when talking about investments.
When I left my last civilian job, I took my pension money out and invested it in a money market that resulted in a 24% return that doubled it in three years, which then happened again.
