Stop sinning, save your retirement

By Kathy Kristof

If your retirement account has gone to hell in a handbasket, it may be time to repent.

Give up some pricey sins -- alcohol, tobacco and gambling -- and you could save a fortune. You could rebuild your 401(k) and vastly improve your ability to retire wealthy, no matter what happened to the stock market.

"It's all about choices," said Christian Cordoba, the president of California Retirement Advisors in El Segundo. "If you don't spend money on sins, you've got more money available to save and invest. You'd be surprised at how quickly it adds up."

The drain of drinking

About two-thirds of adult Americans drink, and about one-third of those could be classified as problem drinkers -- people who regularly consume more than the daily low-risk allowance or who binge drink. Those numbers come from Ann Bradley, a spokeswoman for the National Institute on Alcohol Abuse and Alcoholism, which offers a self-assessment quiz here.

So-called low-risk consumption amounts to no more than seven drinks a week for a woman and 14 for a man. More than that puts you teetering on the edge of alcohol abuse, Bradley said.

Recessions, not surprisingly, can get more people crying in their beers. Total alcohol consumption peaked during the last serious recession, in 1981, then went on a two-decade decline. The slide ended in 2002, a year in which investors were lamenting three straight years of double-digit losses in the stock market.

Coincidence? Maybe. But it's a fair bet that bankers and Wall Street types, at least, are downing a few more shots these days than when times were flush.

Alcohol can cost problem drinkers their jobs, their marriages and small fortunes. But it's expensive even for John and Jane Average, who consume three drinks daily between them. Assuming each drink costs just $3, they're pouring away $9 a day, or $3,285 a year.

If the Averages had put their money in a savings account earning a paltry 3% per year, they'd have enough for a car (about $17,700) in five years and have saved nearly $90,000 in 20 years.

If they invested the money in stocks and stocks produced their historical average returns of about 9% (we can hope, can't we?), they'd have far more: about $183,000 in 20 years and a cool $1.3 million in 40.

And they wouldn't need a drink when they opened their financial statements.

Smoking away savings

The math on smoking is similar. At roughly $5 a pack, a pack-a-day smoker spends about $150 a month on cigarettes alone. Add in ancillary costs, such as the higher prices smokers pay for life and health insurance, dry cleaning and other sundry items, and a single smoker can spend nearly as much on this habit as our couple above do on drinking.

If you figure the ancillary costs at $100 a month, the total cost of smoking amounts to $250 monthly, or $3,000 a year. That's about $39,000 in 10 years, assuming a 5% annual return and compounded monthly, and about $208,000 in 30 years.

Give up both smoking and drinking, and in less than 25 years you can easily accumulate half a million dollars in savings, even at low rates of return. Just $250,000 would be enough to generate annuity payments of about $1,200 a month for 30 years after you retired, and that's assuming your returns were just 4% to 5%.

Don't believe me? Check out MSN Money's savings calculator and do the math yourself.

Gambling with your golden years

Everybody knows the chance of winning the lottery is rotten, but when the Consumer Federation of America asked people how they could best accumulate a significant nest egg, about one-fifth of survey respondents said the lottery was their best bet. They weren't completely joking.

"They weren't saying that they could do it," said Stephen Brobeck, the federation's executive director. "They were just saying that was where they had the most hope."

Low- and moderate-income respondents felt particularly incapable of saving enough, Brobeck added.

"Most Americans greatly underestimate their ability to save substantial sums over time, in part because they don't understand the miracle of compound interest," he said.

Lately, people have had good reason to give up retirement hopes. The stock market is down about 40% from this time last year, company pensions are being eliminated, and Social Security looks tenuous. Social Security trustees came out last week with their most pessimistic assessment yet, determining that the system will run short of cash in 2037, just about the time that Generations X and Y are ready to punch out of the working world and retire.

Continued: Got cash to burn? Try the lottery

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