Home > why the 12% Return on Investment is high

why the 12% Return on Investment is high

November 6th, 2015 at 06:36 pm

I posted about Couple A and Couple B choosing to invest their money differently. Couple A chose to pay off the home, Couple B chose to invest in a 401k. By assuming a rate of return on investment of 6%, the difference after 30 years was $691,281.00.

Not extravagant but is a pretty penny. But making a different assumption and follow Dave Ramsey and using a 12% ROI well you get a very different scenario.

Couple A - saving $15k/year for 30 years, then saving and extra $18k/year for 15 more years
6% ROI 12% ROI
15 years retirement $358,462.00 $589,327.00
20 years retirement $566,801.00 $1,139,029.00
5 years taxable $107,773.00 $124,611.00
25 years retirement $845,365.00 $2,107,775.00
10 years taxable $251,998.00 $344,216.00
30 years retirement $1,218,146.00 $3,815,046.00
15 years taxable $445,002.00 $731,236.00

Total Savings $1,663,148.00 $4,546,282.00

So using the 12% ROI couple A would have about 3x the savings after 30 years and the number honestly seems really high.

Couple B saving $29k/year for 30 years with a 6% and 12% ROI
6% ROI 12% ROI
15 years retirement $693,181.00 $1,206,991.00
20 years retirement $1,095,510.00 $2,390,051.00
25 years retirement $1,633,918.00 $4,073,891.00
30 years retirement $2,354,429.00 $7,373,694.00

Couple B also has around 3x as much savings after 30 years. And a ridiculous amount. But then maybe I'm too pessimistic and after 30 years of saving my DH and I should have $7.3M at around age 55. I find that incredible to believe however. That we are going to be that rich. I personally think our number might be closer to $2.3M hence why I use 6% ROI.

What do most people project?

4 Responses to “why the 12% Return on Investment is high”

  1. Carol Says:

    A 12 % rate of return is too optimistic. Look at your investments these past few, very good, stock market years (since2008). If you have a diversified portfolio, what was its rate of return?

  2. Livingalmostlarge Says:

    It might be close to 10% because of some really great years. But I've had bad years too. Last year wasn't stellar but 2013 was 25% year. So some great years and some meh years. And in 2005-2009 there was negative years where we contributed and our balance was lower.

  3. Petunia 100 Says:

    IMO, if you project with 5 or 6% and it's enough, then you're fine. If you end up with ROI greater than 5 or 6%, that's fine too. Smile
    The trouble comes when you count on more than 5 or 6%, because you might not get it.

  4. livingalmostlarge Says:

    True the 12% is just a bad idea though to promote and tell people that's what to expect.

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