2005 Year in Review

Your Retirement Challenge: Can Your Money Make Money?

Can your money make money? “Yes, it can when time is on your side --- and you are willing to save part of your money each month and not touch it,” says Jennifer Hunt, a Consumer and Family Economics Educator with University of Illinois Extension.

How does this work, you might ask? Hunt gives this answer: “when money is invested for several years and the return on the money stays in the investment (is reinvested) to also earn a return, your money makes money. This is called the time value of money, or the miracle of compounding.”

If you leave your money in the investment, your money grows faster and faster by earning interest on the interest. Your money is working for you -- helping you reach your long-term goals.

Hunt says a great tool to calculate how much an investment will be worth at a given interest rate over time is located at University of Illinois Extension’s “Plan Well, Retire Well: Your how to guide” website Plan Well - Retire Well Go to the link Enter Well, Retire Well and you will be taken to the Plan Well, Retire Well home page. At the home page, you will need to login in to the site with a login and password. Once you enter the website, to find the savings calculator click on the left hand side Time Makes a Difference heading. Under the Time Makes a Difference heading, click on Make Time Work for You. You can scroll down until you see a Click for Calculator button. Click on this button and you will be taken to the calculator, how much will my savings be worth?

The savings calculator allows you to enter the amount you have invested, the rate of return you are receiving, and any additional deposits you make. From the information you enter, the calculator will show you how much your investment will be worth in the future. Here is an example, with $5000 invested at the rate of 6%, with an additional $300 invested each month for 30 years, a 25% federal tax rate, 8% state tax rate, and an inflation rate of 3%, the investment would be worth $155,574 in 30 years.

The calculator also allows you to see graphs of projected growth and an explanation of how to use the calculator.

Hunt urges you to check out how much your savings will be worth at the University of Illinois Extension’s “Plan Well, Retire Well: Your how to guide” website.

by  Editor, theCity1.com
August 2, 2005