The Daily Dow
Friday, November 07, 1997
by Robert Sheard

LEXINGTON, KY. (Nov. 7, 1997) -- In yesterday's column I calculated the growth of a tax-free Roth IRA for a teenager through his or her sixtieth birthday. There are two points I'd like to follow up on.

First, apparently most (perhaps all) brokers won't accept stock accounts (even IRAs) for minors, so this may not be a practical choice until your child turns eighteen. Nevertheless, there are plenty of ways to get started saving until he or she reaches legal maturity.

But more importantly, as a couple of readers suggested, it makes sense to look at how the astronomical amount it's possible to amass over several decades stacks up in today's dollars. So today, I plugged another scenario into the savings planning module of my Microsoft Money software to take inflation into account as well as compounded growth.

Starting with $2,000 and adding another $2,000 for forty years, your Roth IRA would grow to $9.8 million at an annualized return of 18%. But let's adjust this for inflation over those forty years to see what that $9.8 million would really buy in 1997 dollars.

Allowing for an annual inflation rate of 3%, the total in today's currency would be worth $3.0 million. At 18% growth, that generates over half a million in annual gains. I suspect most retirees could live on much less than half that amount today (and do so comfortably), allowing the rest to continue growing (tax-free).

If you bump the inflation rate up to 4% a year, the total in today's dollars would be worth $2.0 million. And at 5%, the total in today's dollars is $1.4 million. Even at that level, your retirement would be pretty comfortable, yes? And if Alan Greenspan is right in saying that inflation is over-stated by at least one percentage point, the 3% or 4% figure is probably a reasonable estimate.

Remember also that this is simply your IRA account. If your spouse has an identical account, you've just doubled these amounts in retirement. And to fund a full year's IRA only costs you $38.50 a week in savings. You can probably stash that away without even noticing. By the time you add in company retirement plans and additional savings in taxable accounts, you'll be setting yourself up quite nicely, thank you. Fool on!

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________

TODAY'S NUMBERS
Stock  Change   Last
--------------------
T    ---       47.94
GM   -1  3/4   64.75
CHV  -   3/4   83.50
MMM  -   1/4   93.00

           
                  Day   Month    Year
        FOOL-4   -0.76%  -0.19%  19.31%
        DJIA     -1.33%   1.87%  17.57%
        S&P 500  -1.12%   1.41%  25.21%
        NASDAQ   -1.30%   0.55%  24.12%

    Rec'd   #  Security     In At       Now    Change
   1/2/97  153 Chevron       65.00     83.50    28.46%
   1/2/97  179 Gen. Motor    55.75     64.75    16.14%
   1/2/97  479 AT&T          41.75     47.94    14.82%
   1/2/97  120 3M            83.00     93.00    12.05%


    Rec'd   #  Security     In At     Value    Change
   1/2/97  479 AT&T       19998.25  22962.06  $2963.81
   1/2/97  153 Chevron     9945.00  12775.50  $2830.50
   1/2/97  179 Gen. Motor  9979.25  11590.25  $1611.00
   1/2/97  120 3M          9960.00  11160.00  $1200.00


                             CASH   $1167.51
                            TOTAL  $59655.32