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Pay it forward

By Barbara Whelehan · Bankrate.com
Friday, March 29, 2013
Posted: 5 pm ET

For Lent, I gave up eating potato chips at lunchtime and chocolate at whim. Small sacrifices, I know, but now that I've changed my habits, I probably will continue to avoid the chips after Easter, though I won't give up chocolate for all its antioxidant properties!

The force of habit can be changed by will and determination. A better goal would be to increase savings to my retirement plan, which I've been meaning to do since January. I resolve to fill out the paperwork next week.

That's the beauty of making saving a habit -- you only have to fill out the paperwork once a year and your savings go up automatically throughout the year.

Retirement on the back burner

Too many Americans do not make retirement planning a priority, judging from the Retirement Confidence Survey released last week by the Employee Benefit Research Institute. Two-thirds of Americans have less than $50,000 in total savings and investments, not including defined benefit plans or the value of their homes. Just 24 percent have $100,000 or more saved up. That's shocking because we have plenty of resources at our fingertips to build wealth in a tax-favorable way -- namely workplace retirement plans and IRAs.

Baby boomers are in the biggest trouble because retirement looms large and their nest eggs, small. They have no one to blame but themselves, says Stig Nybo, author with Liz Alexander of "Transform Tomorrow: Awakening the Super Saver in Pursuit of Retirement Readiness." In their words:

Boomers represent the United States' biggest-ever group of earners, collectively earning twice as much ($3.7 trillion) as the "silent" generation that preceded them ($1.6 trillion, according to a 2008 McKinsey & Co. report titled "Why Baby Boomers Will Need to Work Longer"). But their ratio of debt-to-net-worth is 50 percent higher than the "silents" because boomers have consumed more and saved less, taking advantage of the availability of easy credit and low interest rates.

For boomers who are behind the curve, Bankrate's story, Last-minute retirement planning strategies, points out that those who are 50 with zero savings still have a chance to amass $1 million by age 70, assuming a 6 percent annual return. But they would have to maximize their tax-deferred retirement contributions to a workplace plan and an IRA. In 2013, you can stash $23,000 in a 401(k) plan and another $6,500 in an IRA for a total of $29,500. That would require saving about $568 a week, or $2,458 a month, which could be challenging if you also have other financial priorities.

Boomers should take their children aside and implore them to start saving now. This would be a great gift for them because it will give them more options -- such as retiring early, if they want. In an open letter to stakeholders at the back of Nybo's book, he urges parents to get this message across to their children, pointing to MoneyAsYouGrow.org as a place to launch the discussion.

You know one of the coolest things about paying it forward in this way? We all know that actions speak louder than words, right? Then it won't be enough for you to embrace the typical "do as I say, not as I do" mantel of parenting. By researching the issue of financial literacy in order to offer a young person wise counsel, you could end up finding that you have changed your own beliefs and behaviors and can look forward to a more secure retirement than would otherwise have been the case.

What are you doing to improve your retirement readiness?

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Follow me on Twitter: BWhelehan

Barbara Whelehan is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It is available at Amazon, Barnes & Noble, iBookstore and other e-book retailers.

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