First-Time Investor: Grow and Protect Your Money
The following tables illustrate how various rates of return affect your savings, retirement and lifetime results.
Results of 40 years of saving $5,000 annually
at various rates of return
The point of this simple table is that small changes in your annual return can have a huge effect in your results over 40 years. Notice, for example, that by increasing your return from 9 percent to 10 percent, you pick up an additional $603,551. That is three times the total of all the money you saved over the years!
As you read about the various ways to increase your return in seemingly small increments, I hope you’ll remember small changes add up over time.
Imagine 40 years of savvy investing! The following table takes up where Table 1 left off.
Retirement income resulting from various rates of return
These figures assume you do the following:
A. Invest $5,000 annually from age 25 through 64.
B. Withdraw 4 percent for living expenses when you are 65.
The point of this table is to illustrate the payoff you can have from turning years of savvy investing into cash flow when you retire. Note the enormous differences in your payoff as you achieve higher returns. This is compelling evidence that small increases in return can add up to huge differences in your retirement lifestyle.
Total lifetime results of various rates of return
The following table takes the set of calculations from Tables 1 and 2 a step further, showing the potential results of various rates of return during your life, and after your life is over.
Each increment in the table results from a change of just one percentage point in annual return. Unsophisticated investors often regard a mere one percentage point as being insignificant, but this table shows how that is.
To see Table 4, click here
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