Figuring out how much money you need for retirement is enough to make you drink. Some quick math: Say you need $50,000 a year to live. And say you plan on retiring at 65 and living to 85. That means you need to save roughly $1 million before you close your office door for the last time. And that’s without accounting for inflation, which after 30 years can reduce that million’s purchasing power almost by half.
What was that again about a stiff drink?
But don’t reach for the bottle of booze just yet. You can actually get 15 percent of the way there by doing the exact opposite.
STEP ONE: CUT DOWN ON YOUR DRINKING BY TWO DRINKS PER WEEK
A great gin and tonic will run you about $12. By ordering one less gin and tonic every Friday and Saturday night, you’ll save $24 a week. (If cocktails aren’t your thing, stop buying a bottle of wine or a couple of six-packs, which cost about the same.) That $24 in weekly savings, even without being invested, adds up to more than you’d think. How much more? $37,000 after 30 years.
STEP TWO: INVEST IN A ROTH IRA
If you can get past its profoundly boring name, a Roth IRA is a financially rewarding move. A Roth individual retirement account (IRA) offers two big things. First, it provides a future tax break—i.e., you’re investing after-tax dollars, so when you take it out in retirement, the money’s tax-free. Second, it has a solid rate of return: 7-8 percent, assuming the investments within your IRA track an index like the S&P 500, which has historically returned in that range. Combined with the magic of compound interest, this aggressively increases the size of your investment over the years. (N.B. All financial predictions are uncertain. To play around with different interest rates and contribution amounts, Bankrate has a fun calculator.)
STEP THREE: WAIT 30 YEARS
An 8 percent return rate on that $24/week (contributed annually), over three decades, ends up bringing in $152,688.64. Just look at that upper arching curve! That’s the shape of financial security.
Now, you deserve that drink.