ProFolio

Compounding is where the positive or negative return is dependent upon both the starting amount, or principle, as well as the return. Compounding works in your favor for positive returns in savings and investment accounts. Here the amount received is dependent on the total value of the account - including previous returns - and creates a positive growth function. Compounding works against you for credit cards where the amount you owe is dependent upon the total debt of the

Assets need to grow above the inflation rate in order to grow at all. Inflation is the biggest worry when trying to grow assets for retirement. Future dollars get discounted, or become worth less, through inflation. Investors need to overcome the discounting of inflation in addition to achieving the desired growth. The long term inflation rate is 3% (from 1900 through 2016), but inflation can vary dramatically. In fact, inflation has averaged over 4% over the last 45 years

The amount you need to retire depends upon the length of retirement, inflation rate and anticipated return on money used for retirement. For example, if you rely on 70% of you pre-retirement income during retirement and Social Security provides 40% of that, your investment account will need to provide the remainder. An account holding 10 times your pre-retirement income and returning 6% annually with 3% inflation (the historical long term average) will provide the needed amou

You will need about 70% of your pre-retirement income in retirement to maintain your standard of living, yet, for average earnings, Social Security benefits provide approximately 40% of that. The majority of retirement income will have to come from somewhere other than Social Security. From 1990 to 2012 the number of private industry workers getting pensions fell from 42% to 22%. The trend is unmistakable; workers have to support the bulk of their own retirement. In order