Example #1

If you had the ability to double your investment every month and you started with only one penny...

Of course it is essentially impossible to find such an investment but we can use the math the same way for a more realistic scenario

• If a couple each contributes $2000 annually to a tax-deferred retirement plan for 40 years, the total contributions to the plan would be $160,000.
• Assuming a 10% rate of return, the total account value would be $2,251,945.
• The couple could then withdraw $21,792 per month for 20 years.

Example #2

Imagine that you interview for a new job as a CEO (wouldn't that be nice?), and you are offered a choice for your monthly salary: 1) $1M (million) dollars, or 2) a penny a day, doubled each day for the month. Which would you choose? Most people's first reaction is to take the $1M. However, if you agree to get paid the penny salary that doubles every day for a month, you'll have been paid over $21M dollars by the end of a 31-day month!

Consider the fact that on the second day you'd be earning 2 cents, on the third, 4 cents, on the fourth, 8 cents, and so on. It takes about half the month just to get to minimum wage, and by the following day you'd almost be earning a living.

By day twenty-one, you'd be earning over $10,000 per day, and would probably be growing quite enamored with the job. On day twenty-five, you would earn enough to buy a decent home, and with your previous twenty-four days' earnings, you could furnish it and buy sports cars to fill the double-car garage, as well as a modest summer home.

On day twenty-eight, you'd earn more than the average wage-earner will over his entire working life, and by day thirty, you'd be earning the equivalent of a state lottery's winnings. On the final day (day 31), you'd be earning almost eleven million dollars ($10,737,418.24), and would have earned a grand total for the month of $21,474,836.47!

Don't believe it? Check out the payment table.

Now what do you think about the power of compound interest?