Your Money_ The Missing Manual - J. D. Roth [141]
Note
In How to Retire Early and Live Well (Adams Media, 2000), Gillette Edmunds shares his formula for calculating retirement needs based on current expenses. His formula takes taxes, inflation, and investment returns into account. It's too math-y for this book, but if you'd like to calculate things by hand, track down a copy at your local library or used book store.
Looking at the results from just one retirement calculator isn't very useful. But if you compare the numbers and recommendations from several, you can get a pretty good idea of how much you'll need to save for the retirement you want. If your results are anything like mine, you may feel a little overwhelmed. In that case, make a commitment to start saving for retirement today.
Tip
Analyzenow.com has lots of great info about sensible retirement planning. The site doesn't include a calculator, but it offers plenty of free downloadable spreadsheet templates so you can run your own numbers, as well as tons of articles about retirement planning.
Why You Should Start Saving Today
If you're young, you may not think you need a retirement account—you can worry about that later, right? Besides, you have better things to do with that money, like taking a trip to Vegas with your friends. But the hard truth is that, no matter what your age, you should start saving now.
According to the 2009 National Retirement Risk Index from the Center for Retirement Research, 51% of Americans are "at risk of being unable to maintain their pre-retirement standard of living in retirement" (http://tinyurl.com/CRR-nrri). Part of the reason is that these folks didn't plan ahead and set aside enough when they were young.
"The amount of capital you start with is not nearly as important as getting started early," writes Burton Malkiel in The Random Walk Guide to Investing. "Procrastination is the natural assassin of opportunity. Every year you put off investing makes your ultimate retirement goals more difficult to achieve."
An article about retirement in the February 2010 issue of Consumer Reports featured a survey of more than 24,000 of the magazine's readers. The findings won't surprise you: "Satisfied retirees planned early and lived within their means," the article noted. Those who started saving in their 30s had an average of almost $400,000 more than those who started in their 50s and 60s. Even readers who started in their 40s typically had $200,000 more than those who waited till later in life.
The bottom line: Save early and often. People come up short of cash in retirement because they put off saving. As you'll see in a moment, the secret to getting rich slowly is the power of compounding. When you're young, time is your greatest ally. Even modest returns can generate real wealth if you start early and stick with your plan.
Frequently Asked Question: Finding Cash to Save
I know saving for retirement is important, but I can hardly find the money to pay my bills, let alone to sock away for my golden years. How can I possibly set money aside for retirement?
Saving for retirement is crucial, but if your current financial situation is precarious, it's more important to find a way to make that more stable first—to improve your cash flow (see The Power of Positive Cash Flow)—and then worry about the future. This isn't license to ignore retirement savings; it's just a reminder to take care of today before tomorrow. Be sure to:
Stash some cash for emergencies. Before you save for retirement, save for the present. Without a rainy-day fund, even small disasters can sidetrack your savings for months (or years). See Chapter 7 for tips on where to put the money.
Pay off your credit card debt (see Chapter 4). At the very least, make significant headway on your debt and have a plan for getting