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260

When people over 60 reflect back on their life, they generally do not say: I wish I took out more student loans. I wish I bought more expensive cars. I wish I bought fancier clothes. I wish I didn't save so much money for retirement. In fact, it's almost always the opposite. Why? It's because your question is a good one and that same compelling argument ...


205

Why do they need so much money as old people? The future is unexpected. My country has universal healthcare, so medical expenses are not a worry. Will it have UHC in 50 years? Probably... but will the co-payments rise significantly? I'll be living in my own house that is already paid off at that point, so no rent or mortgage payments. Unless ...


102

The reason some people save so much so young is that they understand the growth potential of COMPOUND INTEREST. Every dollar that I put away for my daughter at 2 years old can be worth $1,000 when she retires.* What would anyone do with all of that money? There are plenty of ways to spend wealth that you haven't discussed. Here are a few goals that you ...


88

There are many Shariah compliant investments, so that could direct your resulting searches. Shariah compliance is a very strict interpretation of Islam and for investing offers strict guidelines in what to invest in and excludes investments in companies that engage in certain businesses such as gambling, tobacco, pork and trading of gold and silver on a ...


64

No. The compounding is a multiplier, and multiplication is distributive over addition. So 1.1 * (x + y) = (1.1 * x) + (1.1 * y). That is assuming that the accounts are large enough that no individual payment gets lost as a rounding error (three accounts earning 1.4c each will pay you 3c, combined they will pay you 4c). So long as the accounts are at ...


57

For myself, I saved because having accumulated a nice pile of money - enough to live modestly on the income (what I call being "independently poor") is both security and freedom. Take security. What are the odds that sometime between wherever you are now and your 70 year old self, you will find yourself out of a job, with no prospects of finding another ...


45

I'll be living in my own house that is already paid off at that point, so no rent or mortgage payments. This very much depends on where you live. In the major cities of the costal USA many folks will be paying on mortgages until the day they die. I wouldn't need (or want) a car, and would probably use a bicycle or maybe some cheap future-scooter... ...


37

My country has universal healthcare, so medical expenses are not a worry. People in their 20s (and 30s) thinking about the future may choose not to gamble that the government in 50 years will look the same as it does today, and prepare for the eventuality of paying for their own medical care.


30

My understanding of Muslim finance is that you may not lend money at interest, including investing in in things that pay interest. However you may still make investments: it just has to be in places where you get a share of profit, rather than a fixed rate of return. You would be better asking the Muslim community specifically for more details. The benefits ...


25

Compound interest is only relevant when you get paid interest and you reinvest it. In cases where you buy, hold and sell, with no income generated during the holding period, there isn’t any income from the investment to reinvest. There’s no interest, and hence no compound interest. The ‘growth’ of home values is just a ‘paper’ (re)valuation. If you paid $...


22

Everyone has different retirement goals. Some people want to retire before they are 70, the earlier they want to retire the more they need to save now. Other people want to travel in retirement and drive a nice car. It just varies a lot. There's also uncertainty about future expenses. Medical expenses are much higher for the elderly, if you want to live in ...


18

You just use the compound interest formula: Principle * (1 + Rate / Time) ^ Time For Cell C2 you want this formula: =B2*(((1+(D$1/360))^(C$1-$A2))-1) Column A is deposit date Column B is deposit amount Cell C1 is today's date Cell D1 is the annual interest rate Most savings accounts that I know of compound interest daily and credit earned interest ...


17

There are two obvious cases in which your return is lower with a heavily leveraged investment. When the interest payments on the loan outweigh the return. If a $100,000 investment of your own cash yields $1000 that's a 1% return. If you put in $50,000 of your own money and borrow $50,000 at 2%, you get a 0% return Whenever returns are negative (After ...


17

There are two main types of pensions to consider in answering your question: (1) Defined Benefit pension plan. This type is the 'traditional' pension plan. It means that when you retire, you get a benefit based on, generally, years of service & salary over that period. Even if the market fails, the company still has a legal obligation to pay out the ...


15

What makes you so sure that you know what you'll want when you're 70? Seriously. When you where a child, if you ever even had the thought, did you predict your current life well? How about when you were a teenager? How well does a 13 year old understand what a 33 year old (just to pick two points on the curve) wants/needs? Project that (lack of) accuracy ...


14

I cannot tell you what is or is not allowed under Islamic law. What I can tell you is that when most investors talk about the "power of compound interest," they are not actually necessarily talking about interest! The idea of the magic of compound interest is that when you receive an interest payment on your investment, you now have a larger investment, ...


14

This model would work fine under a couple of assumptions: that market interest rates never change, and that the borrower will surely make all the payments as agreed. But neither of those assumptions are realistic. Interest rate risk Suppose Alice loans $1,000,000 to Bob at 4% under the terms you describe. Bob chooses to make interest-only payments of $40,...


14

Let's say I live like you describe, spending very little money beyond essentials like food. I spend much less than a typical person. Let's also say I have a typical, full-time job. Since I have typical income but less than typical expenses, what am I to do with all this excess money? I suppose I would save it. So a high savings rate doesn't necessarily ...


12

When I am old and retired (70 years +), I don't plan to spend a lot of money: You are implying that saving is for when you are retired, and retiring is when you are above 70, which is wrong. Being retired doesn't forcefully mean that you're completely old. Some people retire earlier than others. If you retire around 50 or earlier, you still have plenty ...


10

Leverage means you can make more investments with the same amount of money. In the case of rental properties, it means you can own more properties and generate more rents. You exchange a higher cost of doing business (higher interest fees) and a higher risk of total failure, for a larger number of rents and thus higher potential earnings. As with any ...


10

Yes, you are paying extra in interest, but additionally, you are decreasing your payment each year, taking 21% longer to pay off the loan, which further increases the total interest you will pay. The first year, you paid $49,840, but the second year you paid only $43,800. The third year, you're decreasing your payment to $42,000. If you ran this like a ...


10

Stocks don't pay interest. Some do pay dividends. You can use the dividends to purchase more shares of that stock, or you can use it to buy shares of a different company. When people talk about compound interest they are talking about instruments that pay a guaranteed amount or a guaranteed percentage periodically. This can include bank accounts, CD's and ...


9

Continuous compounding at an interest rate of 100% is unlikely to be used in practice. More generally, if the interest rate is x% per annum and interest is compounded n times during the year (so that at the end of each sub-interval, the amount increases by a factor of (1 + (x/100)/n) ), then the amount has increased over the year by a factor of (1 + (x/...


8

You buy a share of something for $100. It goes up by 10% over a year, and you now have $110 in value. It goes up by 10% next year and you now have $121. That original $10 increase was compounded even though you're not earning interest because the gains are measured as a percentage. If, instead, you'd only invested the second year you'd have less value. ...


8

A 401K (pre-tax or Roth) account or an IRA (Deductible or Roth) account is a retirement account. Which means you delay paying taxes now on your deposits, or you avoid paying taxes on your earnings later. But a retirement account doesn't perform any different than any other account year-to-year. Being a retirement account doesn't dictate a type of ...


8

The "Future Value" function does this. =FV(rate, number_of_periods, payment_amount, present_value, [end_or_beginning]) For example: =FV(2%, 12, -100, -400, 0) Note that the payment_amount and present_value should both be entered as negative numbers, otherwise it outputs a negative value See the Google support article for more info and related functions.


8

I'll be living in my own house that is already paid off at that point, so no rent or mortgage payments. In the United States, you'd still have property taxes. These would be less than a mortgage or rent payment, but it's not nothing. My country has universal healthcare, so medical expenses are not a worry. And what are typical expenses for an old ...


8

Well, to clear up terminology, stocks do not pay interest. Many pay dividends, which you can sometimes choose to either take as cash or to reinvest (meaning either take the dividend in stock or buy more stock with the dividend), which then works much like compounding interest. However, the price of the stock drops by the same amount as the dividend, so it is ...


8

I own a stock. Bought 10 years ago, for $1000, and after 10 years it's worth $2000. No dividends, no interest, just growth in value. The increase over 10 years was 100%, and one might say the average increase was 10% per year. But, the true CAGR (compound annual growth rate) was 7.18%. While I respect the others' answers, there's a similar math that ...


7

There's one problem here. You've borrowed a substantial sum, but don't seem to have any agreement with the lender. We have a principal number and interest rate, sure, but a cavalier "pay me the interest, and whatever principal you can" set of terms. Hubby's suggestion is accurate. The way a mortgage works is when I pay principal, the interest accrues on ...


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