Schaefer estate shows the joys of compound interest

May 23, 2011

John Fuller's letter ("How did Schaefer get so rich?" May 20) asks how the late Gov. William Donald Schaefer could have had $2.5 million after a life in public service. The answer lies in saving and the practical consequences of compound interest. Governor Schaefer had neither children nor an extravagant lifestyle. He could easily have saved 5 percent of his income, perhaps more, every year for 60 years. Even at a conservative average interest of 4 percent, the earliest of those savings would have multiplied over 10 times, those from 40 years ago almost five times, those from 20 years ago more than two times. There were periods when interest rates were much higher than 4 percent, and if he made shrewd investments he could have done better than these numbers suggest. An estate of $2.5 million is a very reasonable result.

Most Americans have children. Few have top executive jobs, either in government or in the much higher-paid private sector (where Mr. Schaefer's entire estate is less than the annual base pay of some executives).

Most will never accumulate enough to owe estate tax, but they can still benefit from compound interest. These are uncertain times, and regular saving may be impossible, but if you save what you can when you can you come out better in the long run.

Katharine W. Rylaarsdam, Baltimore

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