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Kathleen Casey-Kirschling. Remember that name. Yesterday morning she officially became the first baby boomer to file for Social Security. She is just the beginning of the swelling number of Social Security beneficiaries that will be created by the retiring boomers. The problem is that they’ll rapidly exceed the ability of the Social Security system to support them, or anyone unfortunate enough to retire after them. Since it looks like the chances of Congress ever actually fixing Social Security to the point where it may live long enough to actually benefit the Gen Xers coming next, and company pensions have disappeared like so many cans of Coke from a Microsoft company refrigerator, retirement planning should become a key part of everyone’s agenda (if it wasn’t already).

Even if Social Security were going to be just fine, it merely provides an anti-destitution safety net. It doesn’t provide adequate income for a comfortable retirement. That’s up to you. Here are the three most important things you can do to make sure you live in the style to which you’ve become accustomed.

Number 1 Most Important Thing When Retirement Planning for Those Under 30 - Start Now

That is by far the most important thing the average person can do to help make sure they don’t live in a Maytag box down on 2^nd when they get older. Due to the extremely powerful effects of compounding, the length of time you let you money grow will do more than almost anything else to determine the size of your retirement accounts. The rate at which you’ll have to save for a secure retirement will double if you put off starting you saving from age 25 to age 40. That’s a lot of money every month, so think twice before avoiding those deductions.

Number 2 Most Important Thing When Retirement Planning for Those Under 30 – Readjust your perceptions.
A million dollars isn’t what it once was and by the time anyone who’s now under 30 reaches 65 – 70 years of age, it may only be enough to buy a new Honda Accord and a tank of hydrogen. I heard a radio survey a few months ago where they asked some 21 year old about retirement. She actually said “A million dollars? Why do I need that much?” Obviously the effects of inflation were lost on her. She may not have taken into account.

To see how much you’ll need for a comfortable retirement, you’ll want to take into account that money will have lost much of its current purchasing power in 40 years. That $1,000,000 in 40 years, if inflation averages 6%, will be the same as about $97,222 today. I don’t think too many of you would feel safe retiring with only $97,000 stashed away.  If inflation does average 6% (A bit high by current standards, but better safe than sorry. You never know, we could get another president like Jimmy Carter, then all bets are off), you’ll need far more than you do now to adequately fund your retirement. For example, let’s say you want to retain 80% of your pre-retirement income, you’re now 25 and grossing $42,000/ year, you assume an average 5% raise every year, and you plan on retiring when you’re 65. This assumes you never get that big promotion, start a successful business, or otherwise dramatically increase your income. How much would you need to have in your retirement accounts to make that happen?

If your retired today, and wanted that 80% of your income (which would have grown from $42,000 to about $89,000 assuming your annual raises), you’d have to earn about $71,000 a year from your retirement funds and Social Security (fat chance). Said funds would have to have grown to $785,000 in today’s dollars. Now, if you project that forward 40 years, to earn the equivalent of that $71,000, you’ll need about $232,000 a year. To get your $232,000, your nest egg will need to be the equivalent of today’s $785,000, which will be $2,561,000. So, you can see that a mere million dollars will not cut it.

Number 3 Most Important Thing When Retirement Planning for Those Under 30 – Make it automatic. There are two reasons to make regular deposits into your retirement accounts automatic. The first is financial, the second, psychological. Financially, you need to make regular contributions because it’s hard enough to save an adequate amount to fund your retirement accounts even when contributions are automatic.

Psychologically you must do this because it weans you from dependence on that portion of your income, and engenders confidence as you see your retirement account regularly growing larger. If the contributions are not automatic, it’s all too easy to divert a payment or three every year as other financial diversions occur. It goes without saying that you should take advantage of every cent of your employers matching contribution if they offer matching. It is, after all, free money! By making regular, automatic contributions, you’ll also enjoy the benefits of dollar cost averaging that will add to the power of your savings.

Number 4 Most Important Thing When Retirement Planning for Those Under 30 – As I’ve said regarding other financial and business endeavors, you’ve got to have a plan. You should have a plan for retirement as well. (That’s why they call it retirement planning) You’ll probably make deviations to it as financial and family conditions change, but at least you’ll have a roadmap of where you are starting and where you want to be at the end of your journey. If you must adjust your route along the way, so be it.

When you do your year end financial review, take a look at your plan and reevaluate it. Are you still on track to meet your goals? Are they still the same? Maybe you’d like to retire earlier or live better in retirement? Perhaps you’ve decided that material things aren’t all they’re cracked up to be and you can, in fact retire with much less.