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Compound Interest, The Rule Of 72, & Albert Einstein.

Do personal retirement accounts achieve solvency?

Yes (see here and here).

Is that the only reason to support them?

Absolutely not.

Personal accounts would also provide a better benefit for younger workers and create an ownership society in which lower and middle income earners could keep more of what they earn and ultimately pass it on to their survivors.

Personal accounts would tap the raw power of what Albert Einstein admired as one of the most powerful forces in the universe, compound interest and the rule of 72 (in which you divide 72 by the interest rate to see how many years it will take to double your money, so a 6% rate of interest would double your money in 12 years).

As WILLisms.com noted before, even AARP urges its members to harness the power of compound interest, on a page titled "Count on Compound Interest." AARP explains to its members:

Many years ago, someone asked Albert Einstein what he thought was the human race's greatest invention. His reply?

"Compound interest."

Compound interest is a powerful tool for building wealth and financial security. Over time, it can make your money grow dramatically.

"Fatherflot" at the left-wing blog dailykos.com tries to debunk Einstein's often-cited awe of compound interest, following a casual aside on the subject in a speech delivered by Treasury Secretary John Snow.

"Fatherflot" and the other kos people, however, can't seem to come up with any contrary evidence on whether Einstein actually admired the forces at play in compound interest, nor on whether compound interest is really so great.

WILLisms.com will go ahead and assume that even if Einstein did not claim that compound interest is one of the greatest forces in the universe, the idea behind his comments remains solid.

The rule of 72 is one reason why personal accounts are so attractive for younger workers, and a reason why it is so imperative that we act soon to reform Social Security. Each day the system remains in its current form is a day younger workers are being robbed of compound interest.

It's time to put compound interest to work for Social Security and for American workers.

Posted by Will Franklin · 17 March 2005 11:50 AM

Comments

Posted by: ZSA zsa at March 17, 2005 02:31 PM