How It Works
The Rule of 72 is a simple formula that can be used to approximate the number of years it will take for your money to double.
You simply divide 72 by your interest rate.
You simply divide 72 by your interest rate.
Presto!
Like magic, the result is the number of years it will take your money to double.
72 ÷ interest rate = years to double
Estimating doubles can help simplify money decisions. This is a practical formula.
It's All About The Interest Rate
The higher your interest rate, the fewer years it takes your money to double.
72 ÷
1%
= 72 years to double
3%
= 24 years to double
6%
= 12 years to double
9%
= 8 years to double
12%
= 6 years to double
Will you retire a millionaire?
The higher your interest rate, the fewer years it takes your money to double.
I'm 32 and I have about $50,000 in my retirement fund at work.
OK, TJ, let’s say you don’t add any more money to your retirement fund. How many doubles do you need to have $1 million when you turn 67 years old?
Simple math. I got this. After one double I’d be at $100k, then $200k, $400k, $800k… so about 4 doubles, right?
Correct, TJ! With only 35 years left until retirement, your money will have to double every...
…8 years! That's some fast doubling. What kind of rate of return would I need to get a double every 8 years?
You’d need a 9% rate of return, because 72 divided by 9 equals 8. That’s the growth you need to become a millionaire by retirement.
Wow. 9% is higher than I would have guessed. I’ll need my financial professional to help me aim at that. But at least I know the target now—and as my dad says, "you'll never hit a bullseye with your eyes closed."
Good thinking, TJ. And good luck using the Rule of 72 to shoot straight.
I’m a few years older than TJ. OK—more than a few. I’m about to turn 50 if you must know. If I have about $250k in savings, what interest rate do I need to have $1 million by the time I’m 67?
That’s only 2 doubles, Sarah. $250k to $500k, and then $500k to $1 million. See if you can use the Rule of 72 to figure it out…
Fine. Let’s see. At 49 years old, I have 18 years before I turn 67. Since my money needs to double twice, it has to double every 9 years. That’s pretty straightforward. Now what do I do?
You’ve almost got it. The formula also works backwards. You can divide 72 by 9—because you want your money to double every 9 years—to get the interest rate you need to reach $1 million by retirement. Give it a try…
Sure. 72 divided by 9 equals 8—which means I need an 8% rate of return on my money. Huh. I wonder what rate I’ve been getting…
That would be worth finding out, Sarah. Time to call your financial professional. It’s amazing how the Rule of 72 creates urgency so we can become more savvy and strategic about our personal finances.
The Hazard of Not Knowing the Rule of 72
The national average interest rate for savings accounts is .42%.1
Apply The Rule Of 72
72 ÷ .42% = 171
.42%
Your Money Would Double In
171 years!
Compare that to
The national average interest rate for credit cards, which is over 20%.2
Apply The Rule Of 72
72 ÷ 20% = 3.6
20%
Your Money Would Double In
3.6 years!
So their money doubles every time there's a new Summer Olympics and ours doubles...
...every 3 generations?! That's why everyone needs to know the Rule of 72.
There's over $10 trillion of consumers' money stagnating in savings accounts averaging only .42% annual interest.3
The Rule of 72 can help protect you from gimmicky promotions from banks, settling for opportunities that don’t give you the advantage, and taking on debt that might take forever to pay off.
Reach out to learn more about how the Rule of 72 impacts your life.
