Power of 12% Returns

Let me give you an idea of what I’ve found to be the biggest motivator to learn how to become a proficient stock market investor.

We’ve thrown the 12% number around before. We believe that once you’ve learned how to correctly invest in stocks, you will have the power to realize annualized 12% returns going forward. But what does that mean in real dollars, for your savings, and for your retirement years?

Being able to earn 12% returns has enormous impacts on your savings and retirement. Sure, 12% is not going to make you rich in 1 or 2 years. The truth is, unless you take enormous amounts of risk, or get lucky, or inherit assets—nothing will make you rich in a year or two.

But 12% returns will…if you have enough time. And if you are looking at retirement already—12% returns will enable you to withdraw so much more from your existing retirement accounts, starting immediately.

Let’s take a look at some calculations. Now don’t get overwhelmed by any of the calculations here. This is to motivate you and show you what’s possible. I’m going to walk through some savings and retirement calculators that we highlight in our retirement course.

Here’s the savings calculator:

savings accumulation calculator

You can access it at MyCalculators.com—of which we have no association. We just really happen to like their calculators—and they’re free. You can solve for any of the 5 inputs on the calculator. We’ll use it here to show what kind of numbers 12% returns will enable you to accumulate over time. You can do any of these calculations for yourself as well.


The Average Financial Path of a 45 Year Old 

Let’s start with an account of—let’s say $100,000. And let’s assume this person is 45 years old. We’ll assume that they have about 20 years left until they will retire. The market average of around 5.5% (7% average return minus 1.5% in fees) will turn every $100,000 they currently have saved up into about $292,000 in 20 years—not accounting for additional savings.

45 year old accumulation calculator

So they will most likely turn what they have into a little under triple that in the next 20 years before they are hoping to retire. This is by taking the traditional financial path of investing their money with an advisor or professional who is lucky enough to realize the market average.

Going to the retirement calculator, we’ll be able to see what that gives them in retirement income. We’ll plug in 20 years until retirement, we will assume this person will live 20 years in retirement, we’ll use a growth rate—called interest rate here—of 5.5%, and a 3% projected inflation rate. We saw from the first calculator, that they will have about $292,000 accumulated for every $100,000 they currently have in savings, and we’ll leave the last number, “Do you want to have any money left?” at 0. Solving for “How much do you need to live on annually”, it shows that this individual will be able to withdraw about $10,000 each year in retirement, for every $100,000 they currently have saved up.

retirement calculator

Whoa. That’s not very much for someone who seems to have a decent amount already saved up. What happened? Well, it’s because they are not earning a very high return—about the average minus fees—and inflation is constantly eating away at their money. Now, that $10,000 is inflation adjusted so this really means that they will be able to withdraw the equivalent of $10,000—in today’s dollars—for every year during retirement.

$10,000 in today’s dollars will actually require a much larger withdrawal in 20 years—in other words $10,000 in 20 years will not be worth the same as $10,000 is today.


The Ultimate Stock Investing Path (12% Returns) for a 45 Year Old 

But let’s now assume they learned how to become a good stock market investor. Let’s change the calculations up a little now that this individual can earn in excess of 12% returns.
Just by changing the interest rate to 12%, this individual will now be able to accumulate about $964,000 by the time they retire—the same 20 year period—for every $100,000 they currently have—this is a huge jump!

12% returns accumulation calculator

And moving over to the retirement calculator to see what kind of annual income that can provide them with in their retirement years, we’ll leave everything the same except now they can get 12% interest…and they will have accumulated $964,000 at retirement. This turns the previous $10,000 they were thinking they would have as income each year in retirement, into over $52,000!

12% returns retirement calculator

Remember that is inflation adjusted so it means that they can withdraw the equivalent in today’s dollars of about $52,000 per year. This is for every $100,000 they currently have, so if they have $200,000, you could double this withdrawal number. This is enormous! This can change your quality of life.


A Younger Stock Investor

What about someone younger? A 30 year old maybe? A 30 year old might have around 35 years or so to accumulate before they retire. If we start with a $10,000 account, instead of $100,000—and assume 35 years to invest, at an industry average interest rate of 5.5 percent, and about $300 in savings per month, they could turn their $10,000 they currently have into about $435,000 by the time they retire.

30 year old accumulation calculator

This doesn’t seem too bad until you realize that is money 35 years from now. $435,000 will buy you a lot less in 35 years then it will today.
Going to the retirement calculator, and plugging in 35 years until they retire, and plugging in the 5.5% interest rate, we’ll put their accumulated amount of $435,000 in the “how much will you have at the time you retire?” field. Solving for how much they will have to live on annually, it shows $9,615.

30 year old retirement calculator

This is not all that great when you consider this is someone who started investing and saving early on. Again, it’s because of the low interest rate, and because of inflation. 35 years from now, they will need a much larger account size to account for the steady decrease in buying power of their currency.


30 Year Old Ultimate Stock Investor

Let’s see what happens for them if they can earn 12%. Just by changing the earnings rate to 12%, and leaving everything else the same, this 30 year old can have a future account balance of over $2,165,000.

12% returns 30 year old accumulation calculator

This is quite a difference! Let’s see what that does for them in retirement.

Changing the earnings rate to 12%, and putting their revised account balance of $2,165,000 in, we’ll solve for how much they can live on annually.

12% returns 30 year old retirement calculator

And this number takes a huge jump up to $76,000 able to withdraw, per year, adjusted for inflation. This power is just crazy.

$76,000 per year vs $9,000 per year.


A Retired Stock Investor 

What about if you’re already in retirement?

Let’s take a look at a 65 year old couple who has accumulated $300,000. They are no longer in their accumulation years, so we’ll look at the retirement calculator only. Now their accumulated amount will allow them to withdraw more each year than the first couple examples, because they are starting to withdraw right now—so inflation eating away at their money will not have nearly as large of an impact.

They have 0 years until retirement, expect to live about 20 more years as well, and let’s assume they can get the average of 5.5%. With a $300,000 account size, this will allow them to withdraw about $18,000 annually for the next 20 years.

retired couple retirement calculator

Now keep in mind this is in addition to social security or their government’s retirement program, as well as any employer pensions or additional retirement income. So the traditional route of giving their money to someone else to manage will allow them an additional withdrawal of about $18,000 per year.

If they could bump their earnings rate up to 12%, then this withdrawal number jumps up to almost $30,000.

retired couple 12% returns retirement calculator

This is quite a significant jump when you consider this is per year for the next 20 years—and starting right now. How many of you would like to have that additional $12,000 or so income during retirement?


Which Path Will You Take? 

Ok I think you get the picture. We’ve been through the numbers and you can see the results. The bottom line is…learning how to realize returns like this—can solve many of your savings and retirement problems and questions. And obviously, earning even higher rates like 15% or so—can allow you to realize even your greatest dreams and potential. Plug these numbers into the calculators to see for yourself!

I hope this has motivated you and shown you how important learning how to do this really is—for you, and your family’s future. Help yourself learn how to do this, and help others learn how to do this as well. Show your friends and family these calculators—and the stock investing course—and see what kind of results and numbers you can achieve for yourself.

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Randy Tudor is the VP of Investment Research for Margin of Safety Investing, LLC. He has over 35 years of experience in financial services, real estate, taxes, and accounting. He currently resides in Phoenix, Arizona, where he heads up the investment research and analysis team by focusing on companies with strong fundamentals, a durable, competitive advantage, honest and talented management, and which can be acquired for a margin of safety price.

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