I’ve been reading up a lot about retirement savings recently.

During 2007, I managed to put away 22% of my income into my 401K. During the year, I carried a little debt that many would say I should have focused on paying off and I sometimes chose to allocate some of the money in my emergency account funding and put it into taxable investments that could boost my income stream or to make my ROTH IRA contributions because I was that focused on saving for retirement and boosting my cash flow.

I know that my focus was a little overzealous and at times I questioned whether or not I’d was taking the right approach but I’d committed to the task for all of 2007, so I did it. I changed my 401K investments to 18% of my salary for 2007 in order to focus more on taxable account contributions.

One of the Schwab podcasts recently mentioned retirement saving with the following:

“Meet our prototype young go-getter. Chris gets out of college at age 22, takes a few years to get settled and at age 25 gets a job paying $40,000 a year. Chris gets annual raises of 4.1% and a promotion every five years that comes with a 10% raise. Chris is a diligent saver, putting away 10% per year of pretax income until retirement at age 65. By then, Chris has accumulated a portfolio of $2.4 million, assuming an annual return on the investments of 8.4%. That $2.4 million is worth $840,000 in today’s dollars.”

We are all in a position where we can make a great difference in tomorrow’s standard of living with very little action today. The sooner you start, the sooner you finish. (1)

I started re-reading Jim Cramer’s Real Money : Sane Investing in an Insane World (An excellent book, you can read some experts here, courtesy of Google Books!) because I recently received a free audio download from AudibleBooks and I chose Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer), the book is narrated by James Cramer and it has some very specific and highly accurate information on issues that can really help to improve your future. I’m going to be posting my book review by the end of this week.(You can read excerpts here, thanks Google!)

Cramer mentions a period during his live in 1978 and 1979 when he was living out of his car in Los Angeles just two years out of college. Cramer writes, “Even though I had barely enough money to eat and pay the Allstate liability bill - I waived the collision! - I still managed to put away $1,500 toward retirement. That’s how important it is to start saving early. I put the money with Fidelity and the compounding of that $1,500 would be enough for most people to live on for several years of retirement. The logic of equities through thick and thin is that powerful.”

Look, everyone has it as their own choice whether or not they are going to save for retirement, go into debt, or just ‘live life like a normal person,’ if you are saving for retirement I congratulate you, if you are not saving for retirement…I wish you well and hope that you change your mind.

If you choose not to save for retirement , you are placing your bet on one of two options.
1. You want to work forever, believe that the government will adequately take care of its elderly, or are otherwise taken care of whether it’s through inheritance, winning the lottery, or through any other means. (2)
2. You choose to face the fact that you will someday desire freedom. True freedom; where you have the means to a life of quality. You own up that it is something you should be doing now and that the underlying math actually is kind of interesting. :) (3)

Retirement is something that everyone should be aware of (if even only to hold the smallest base of financial literacy), if you currently rely on your job income for living expenses and could not continue the same standard of living if you stopped working, someday you’re going to retire and you’ll need a source of income. Starting early; hold the path. The sooner you start saving, the quicker your money will work for you.

Invest in your 401K, keep bumping up contributions until you reach your company match and look into full funding IRAs, and then look towards taxable accounts; because taxable accounts are what will be funding your lifestyle until retirement and THAT is where the fun is!

*:
(1) Philanthropist, jet setter, teacher, parent that spends more time with her kids, or a life of leisure in that $5,000 Brookstone chair that you never think you’ll ever actually buy!
(2) Like if you have a simple life and don’t need much income to support you or just haven’t been converted to option 2 yet.
(3) $1,500 dollars invested in high quality dividend paying stocks will be worth $67,888.88 in 40 years if it compounds at 10%! (Put that $1,500 into Altria and may be worth $1,577,501.26 seeing as how Altria has managed a historical 19% rate of return.