Your Retirement, Up in Smoke

Retirement is many people's most pressing financial issue. Pensions are disappearing, health-care costs are soaring, politicians keep talking about changing or shrinking Social Security benefits, and inflation is marching on. In light of all this, it boggles the mind that millions of Americans have taken few or no steps toward securing a comfortable retirement -- not even opening IRA accounts or participating in 401(k) plans. But even if you have taken some steps, you probably could make your retirement even richer by changing a few of your ways.

Let's avoid the latte
This is where we financial writers will often inject the "latte example," showing you how much money you could save by skipping those daily coffee splurges. Just for a change of pace, however, let's use smoking as an example instead.

Imagine that you're 35 years old, you smoke one pack of cigarettes a day, and each pack costs you, on average, about $5. Multiply $5 by 365 days, and you're looking at an annual cost of $1,825. If you took this $1,825 and invested it in the stock market, earning the historical average return of 10% per year, in 30 years you'd have $31,845. If you invested $1,825 in the market each year for 30 years, you'd end up with more than $300,000! All from quitting smoking.

And you might not even have to quit entirely. If you smoke two packs a day, and cut down to one pack, you'll save the same amount. If you cut out three $5 packs per day, you'll end up with nearly a million dollars for retirement (and much better odds of making it to retirement, as well).

Why $300,000 matters
As Robert Brokamp has suggested in our Rule Your Retirement newsletter, the $300,000 you'd save from ditching that daily pack of smokes can make a huge difference in your life. To make your nest egg last, Robert has explained that you should conservatively plan to withdraw about 4% of it per year in retirement to live on.

So if you want to live off of $50,000 per year, you'll want to have $1.25 million socked away. Are you anywhere close to that? If not, then $300,000 might look a lot more important -- it's almost a quarter of what you need!

A personal example
I don't smoke, though, so someone could reasonably argue that it's easy for me to talk about quitting smoking. I do, however, buy lots of books (as well as CDs and movies) online. Even though I usually pay half price or less, I still buy them, when I could (with a little more effort) find many at a local library.

If I spend $35 per week on these items, I'm losing the same amount of money I would on a pack of cigarettes a day. By cutting out (or cutting back) this spending, I might net $300,000 for myself. I don't know about you, but that's not pocket change to me.

Caveats
Of course, just plunking that money into the stock market won't necessarily net you 10% per year -- that's just the historical average return. To increase your odds of getting there, you need to be careful about selecting stocks. Just to prove that plenty of familiar names deliver strong results over time, here are a few past performers:

Company	10-Year Average	20-Year Average
Lockheed Martin (NYSE: LMT  )	16.6%	11.6%
Caterpillar (NYSE: CAT  )	11.2%	14.0%
Marathon Oil (NYSE: MRO  )	12.4%	11.8%
Archer Daniels Midland (NYSE: ADM  )	13.4%	10.0%
Southwestern Energy (NYSE: SWN  )	47.5%	23.0%
Citigroup (NYSE: C  )	(17.2%)	5.6%
AIG (NYSE: AIG  )	(30.3%)	(7.2%)

Oops! This table shows, more than anything else, that not all familiar companies (like AIG) will perform well, and that some unfamiliar companies may perform very well. It's critical to choose carefully.

Learn more
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