The Rules of 25 and 72
THE RULE OF 25: HOW MUCH "CRITICAL CAPITAL" DO I NEED?
According to this formula, if you multiply the annual income you need by 25, that’s approximately how much money you'll need to save to retire. This would allow you to live off your retirement assets without dipping into principal. This assumes your after-tax rate of return during retirement is around 4% per year.
For example, if you want to generate $100,000 per year in after-tax retirement income, you would need to save a total of about $2,500,000 ($100,000 x 25). That’s because $2,500,000 would produce an annual after-tax income of about $100,000 per year without reducing the principal of your investment.
THE RULE OF 72: HOW MANY YEARS WILL IT TAKE TO DOUBLE MY INVESTMENT?
According to this formula, you can figure out how many years it will take for your investment to double if you divide the number 72 by your annual compounded rate of return on investments.
For example, if you earn 7% per year on investment, and you keep reinvesting that money each year, it will take you approximately 10 years to double your money (72 / 7 = 10.29). If you earn 5% per year, it will take you approximately 14.4 years to double your investment (72 / 5 = 14.4).
As always, I’m more than happy to help you run some numbers and evaluate how your mortgage and real estate investment strategy fits in with your overall objectives! Please call or email me if you have any questions.
That's the average annual return of the S&P 500 Index during the past 10 years.
Source: HomeQB