If aliens invaded Earth and observed cigarette smokers on this planet, they would scratch the body part that contains their brains in an attempt to understand this peculiar behavior. Hmmm. Cigarettes: a leading cause of heart and respiratory disease, has repugnant odor, lingers on clothing, heavily taxed, costly in many ways. No apparent benefits. Why do humans do it?
What do cigarettes have to do with retirement planning, you might ask rather indignantly? Well, if you were to invest the money you would otherwise spend on cigarettes, you could build a pretty nice nest egg.
Let's just imagine you spend $5 per day on a pack. In some areas of the country, namely Chicago and New York City, you would spend around $9 and $11 per pack, respectively. But let's just use $5 because many Americans live outside these cities. That adds up to $1,825 after a year.
Ignoring the fact that cigarette prices go up over time, let's see how much you could amass if you invest $152 per month into a diversified portfolio that generates average returns of 7 percent per year. After 40 years you'd have $398,972 saved up. That's significant retirement savings.
If you assume a 3 percent inflation rate, the savings is $179,658 in today's dollars. But remember, we didn't factor in cigarette inflation, so if your investment amount increased along with the cost of cigarettes, you'd end up with a whole lot more than the calculation shown here.
Getting rich off tobacco
Bear with me here: 40 years ago, cigarettes cost less than a buck a pack. But just for grins, let's use the same investment amount for this next calculation. If starting back in August 1970, you'd invested $152 per month in Philip Morris stock (today called Altria Group) rather than in a diversified portfolio, your returns would have averaged 19.26 percent per year. Ready for this? Your nest egg would have skyrocketed to nearly $20 million -- $19,742,346, to be exact.
Somebody's benefiting from cigarettes, but not smokers.
In fact, smokers are paying dearly. In addition to the cost of the cigarettes, they must bear other higher costs relating to health care, life insurance, dry cleaning, teeth cleaning, etc. And their habit affects the resale value of their cars and homes as well.
This should come as no surprise: Some employers are charging workers who smoke cigarettes higher health insurance premiums. For instance, plansponsor.com reports that the University of South Alabama (where cigarettes are relatively cheap, actually) will be charging smoker-employees $25 more per month for health premiums than nonsmokers. And recently, public workers in Broward County, Fla., and state employees in Tennessee have had to cough up higher amounts to cover their health insurance premiums if they smoke.
Going back to the perplexed aliens, if I were the P.R. tour guide in charge of rationalizing strange human behavior, the best spin I could put on smoking would be this: Smokers live for the moment, not for the future.
Follow me on Twitter!