Talking about investing for retirement may seem abstract to your students, but what if you framed it from a longevity perspective? Do you want to prepare your financial life knowing that you could live to 100? This MarketWatch article provided some actuarial tables showing the probability of living to 100 for different age groups:

So students in your class have a not too insignificant chance of making it to 100 (6.1% for men who are 25 today and 10.2% for women of the same age). Ah, the powers of compound interest, are amplified if you could ever make it to 100. Let's take a conservative approach using this compound interest calculator from Investor.gov: 

• Initial investment: $0
• Investment per month: $400 per month (about 10% if you earn $48,000 per year, which seems reasonable)
• Years to Save: 40 years
• Annual interest rate: 6% (assumes largely stock investment)

That gets you to a nest egg of about $750,000 at the age of 62. What if you were able to keep that nest egg intact until you were 100 years old, 38 years later? 

Let's pull out the trusty formula: Principal X (1+interest rate) ^ number of years

$750,000 * (1.06)^38 = $6.9 million

it is probably at this point that at least one of your students will ask, "What's the value of having $6.9 million on your 100th birthday? Wouldn't you rather spend it along the way?" A fun thought experiment demonstrating the power of compound interest tempered by a dose of reality!

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Want more ways for your students to apply this concept of compound interest? Check out this one from NGPF, Calculate: Compound Interest. 

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.