# THE RULES OF 25 AND 72

Here are two easy-to-remember formulas that can be very useful as you budget for retirement:

### 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 approx. how much money you need to save in order 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 4%.

For example, if I want to generate \$60,000 per year in after-tax retirement income, I would need to save a total of about \$1,500,000 (\$60,000 x 25).  That’s because \$1,500,000 would produce an annual after-tax income of about \$60,000 per year without reducing the principal of my investment.

### The Rule of 72 – How many years will it take to double my investment?

According to this formula, if you divide the number 72 by your annual compounded rate of return on investments, you can figure out how many years it will take for your investment to double.

For example, if I earn 7% per year on an investment, and I keep reinvesting that money each year, it will take me approx. 10 years to double my money (72 / 7 = 10.29).  If I earn 5% per year, it will take me approx. 14.4 years to double my investment (72 / 5 = 14.4).

As always, I’m more than happy to help you run some numbers and evaluate how your mortgage and home equity scenario can help you budget for retirement!  Please call or email me if you have any questions.