A $1 million nest egg by age 65 — it’s a nice thought, but such a nest egg will not happen magically. Accumulating assets for retirement takes time and discipline. What are the keys to retirement security?

First, it’s important to understand that your investment success does not depend solely on your ability to pick the stock of the month, time market highs and lows, or discover the next great fund manager. Most successful retirement funds are built by making regular payments over time. Simply put, the sooner you begin to save for future financial needs, the better. And the sooner you start saving the more likely you are to have the larger nest egg required for living in our community.

Can you afford not to save?
Time can be one of your most powerful investment allies. To illustrate this point, consider the following hypothetical example. Your objective is to accumulate $1 million for retirement by age 65. If you are 25, you will need to make at the beginning of each year an annual investment of about $6,100, assuming a six percent return. That’s about $500 per month. However, if you wait until age 45, you will need to save over $25,000 a year or approximately $2,100 per month to reach your goal. (This is a hypothetical illustration and is not intended to project the future performance of any particular product.)

Although this example is basic, it proves a valuable point: postponing saving until later in the game will force you to dramatically increase your saving habits. This is a difficult task, even for the most disciplined investors.

Where do you begin?
Pay yourself first. This is critical. If you do not currently participate, the first place to begin accumulating savings for retirement is your employer-sponsored qualified retirement plan (401(k), 403(b), etc. Utilizing your employer-sponsored qualified retirement plan presents a tremendous opportunity for you to get a jump on retirement. Some employers will match employee contributions on a dollar-for-dollar basis, while others may contribute a smaller percentage. Either way, taking advantage of the current tax deductions and the ongoing tax-deferred compounding of earnings makes smart investment sense.

You can also invest up to $5,000 in an IRA in 2008. If you’re 50 or older, that amount is $6,000. If you do not currently participate in your employer’s qualified retirement plan and if you meet certain income limits, your contributions to a traditional IRA are usually fully tax deductible. This deduction will reduce your taxable income and your current income tax bill. Alternatively, the Roth IRA may be the right choice for your retirement funding. Some advantages of a Roth IRA include:

• Tax-free accumulation and an entirely tax-free distribution, provided that five years have passed since the first year in which a contribution was made, and you are over the age of 59 ½
• Eligibility for contributions at a higher earned income level compared to traditional IRAs
• No mandatory withdrawals during your lifetime
• The ability to continue making contributions after age 70 ½ if you’re still earning income
• IRS penalty-free withdrawals in a variety of circumstances (same with traditional IRA)
• The ability to contribute to the Roth IRA even if you already participate in an employer-sponsored plan

If you do participate in your employer’s qualified retirement plan, your deduction for your IRA contribution may be reduced or eliminated depending on your annual adjusted gross income. Even if your contributions are not deductible, you should still consider making a yearly contribution because the money earned in the account compounds tax-deferred.
Most likely, withdrawals of earnings will occur in retirement, when you will probably be in a lower tax bracket. Depending on the type of IRA, withdrawals may be taxable and, if you are under age 59 ½, may be subject to a 10 percent tax penalty.

How do I start?
Dollar cost averaging can simplify your retirement planning. There are no mystical secrets behind dollar cost averaging. It simply involves the systematic investment of a fixed dollar amount at regular time intervals. This strategy attempts to take the ups and downs of the market and give you an average cost per share that is lower than the average price per share. And, while this strategy does not guarantee a profit or protect against loss in a declining market, it helps you avoid the pitfalls of trying to “hit the market at the right times.”
Once you initiate a dollar cost averaging plan, the key to success is sticking with it and ignoring market fluctuations. Before starting, you should consider your financial ability to continue making purchases through periods of low price levels.
Don’t delay. Your financial future is your responsibility and with early, careful planning, you can create a brighter one.