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Saturday, April 22, 2006 - Page updated at 12:00 AM

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Save early and watch it grow

Retirement planners advise clients to start saving as much as they can as early as possible. Here are three examples showing the difference it makes when you start saving early: Each example below assumes a 6 percent real (that is, inflation-adjusted) rate of return on savings, then, after retirement, a more conservative 4 percent real rate of return on the savings principal.

A 25-year-old who earns $400 per week

What she saves: 5%, or $20/week, for 40 yrs.

Approximate savings at age 65: $173,000

After 65, approximate return of principal and interest: $825 a month for 30 yrs.

What she saves: 10%, or $40/week, for 40 yrs.

Approximate savings at age 65: $346,000

After 65, approximate return of principal and interest: $1,650 a month for 30 yrs.

A 30-year-old who earns $400 per week

What she saves: 5%, or $20/week, for 35 yrs.

Savings at age 65: $124,000

After 65, approximate return of principal and interest: $590 a month for 30 yrs.

What she saves: 10%, or $40/week, for 35 yrs.

Savings at age 65: $248,000

After 65, approximate return of principal and interest: $1,180 a month for 30 yrs.

How much you'll need at retirement

If you are earning a certain amount per month now, how much will you need at the time you retire to continue to have that much money to spend? The following examples do not include Social Security or pension payouts, since those are variables that are difficult to predict today. The examples include how much money you would need to have in liquid assets (cash, savings and other assets that can be turned into cash quickly — not including your home). These figures assume a 6 percent rate of return, do not account for inflation, nor do they take into account any impact of income taxes.

Yearly income now: $40,000

Approximate savings needed at retirement to have equivalent cash flow for 30 years, running out at the end of 30 years: $556,000

Yearly income now: $60,000

Approximate savings needed at retirement to have equivalent cash flow for 30 years, running out at the end of 30 years: $834,000

Yearly income now: $120,000

Approximate savings needed at retirement to have equivalent cash flow for 30 years, running out at the end of 30 years: $1,668,000

Source: Jeff Berkman, CPA, PFS, Harrison Berkman & Claypool, PLLC and HBC Financial Services, PLLC in Seattle.

Copyright © 2006 The Seattle Times Company

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