The Rule of 72 formula is a quick way to quantify how much return turns into how much money. You can use this to track your progress to retirement, and Andy Shuler has created a nice Rule of 72 calculator in Excel (which you can download for free) that investors can use to do just that.

The Rule of 72 is a very simple rule of thumb that people will use to determine how quickly that they can double their money. In essence, all that you have to do is take the interest rate/72 = Years for your money to double.

For instance, if your interest rate is 7%, it would take you 10.29 years for your money to double, and your equation would look like this:

Honestly, this is one of the easiest rules that you are likely to ever come across, but it is a really good rule of thumb to help you quickly prepare for your savings/investments and make sure that you are on track.

I literally was at the gym this weekend and was thinking about retirement (only about 30 more years to go for me lol) and trying to make sure that we were on track to retire. In my head, I was trying to back into a retirement number.

For instance, if you assume you are going to get an 8% interest rate (which is my assumption for the S&P 500 as the CAGR since 1950 has been 11%) then based on the Rule of 72, your money should double every 9 years.

So, in my case, since I am 28 years old, if I want to build my retirement until age 65, then I would have just under 37 years, or let’s say 4 different 9-year periods of doubling my money with that 8% interest rate. For instance, see below.

I’ve listed various situations, where if someone was to invest for 36 years at an 8% return, essentially their investments would double by year 9, 18, 27 and 36, so…

Your $1000 in Year 1 doubles to about $2000 in Year 9, then…

Doubles again to ~ $4000 in Year 18, then…

Doubles again to ~ $8000 in year 27, then…

Doubles again to ~ $16,000 in year 36.

In this situation that I laid out, my goal was to not touch the money until age 65, but if somehow, I could hold off just another 9 more years, all of those numbers at Year 36 would almost double again! This really is the importance, and the true value, of compound issue. Isn’t it addicting?

I’ve included this by creating a Rule of 72 calculator in Excel (download here) so that you can enter your own interest rate and starting amount and play around a little bit with the different dollar amounts that you might expect to have. But at the end of the day, who cares, right?

The Rule of 72 is a great way to find out how much money you can have saved up, but that’s really just a number with no context…

Like, if you save $100,000 now and receive an 8% return every year, you will have nearly $1.6 million in 36 years. Cool! But would you rather be the person going “my $100,000 turned into $1.6 million in 36 years” or the person saying “man, I really should’ve saved more than $100,000 because my $1.6 million is $1.4 million short of my retirement goal?”

Spoiler – you could be both.

So instead of using the Rule of 72 as a “wow factor”, use it as a way to back into making sure that you’re actually aware of how much you need to save for retirement and making sure that you’re on track to meet that goal.

To help you do this, first you need to determine what your retirement number is.

I wrote an article on finding your retirement number a few months back that should help give you a general idea on what that number needs to be for planning purposes.

I encourage you to be extra conservative and assume that you will need more than what you actually think you will need, just in case you get dealt a bad hand.

I mean, saving too much money is a pretty nice problem to have! The next step is to take a look at this Rule of 72 calculator that I’ve created.

All you will need to input into the calculator is your assumed interest/growth rate, your current age, your goal retirement age, and the goal retirement amount.

Then, the Rule of 72 calculator will automatically decipher how much money you need to have saved by various ages.

Take a look below:

As you can see, based on wanting to have $3 million by age 65, and being 25 years old, assuming a 10% return (which is probably high, I admit – but you can change this!!), then you need to have $46,875 just before age 22.

“But Andy, I just told you that I’m 25 and I don’t have that much!”

That’s ok!

As you can see, by age 29 you should have $93,750 saved
up. **Make that your goal**.

Maybe you’re at $35,000 right now. Try to get up to $93,750 in the next four years to put you on track with your retirement goal. You could be sitting there with your $35,000 thinking you’re on pace for your retirement goal, but you’re really not.

All that this tool does is help open your eyes a little bit to make sure that YOU are meeting YOUR goals.

At the end of the day, everyone’s vision of retirement is different.

Some might want to buy a lake house in Georgia while others might be content downsizing their home and staying locally with their family.

Some people might need $10 million to retire and others might need $1 million.

The point is, it’s personal.

But I strongly encourage you to follow a very simple three step process:

- Figure out how much you need to achieve the retirement that you want for yourself and your spouse
- Figure out if you’re on pace to achieve those goals
- Take Action
- Regardless if this means increase your savings rate or keep on as you currently are, it’s not a time to slack. If you’re ahead of the pace, don’t slow down – things can always change for the worse, such as family issues that increase spending, health, bad market conditions that reduce your assumed growth rate – anything!

The point is, you have to have a plan. As Katherine Paterson once said, “a dream without a plan is just a wish.”