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Back in the late '80s, I "invented" a cardboard thumbwheel offering a low-tech illustration of what retirement would look like given different retirement savings levels. Picture me, in that disco era, with some pieces of cardboard and an utility knife cutting little boxes and then filling in numbers on the wheel part to show up in the right holes. As if the front side wasn't enough, the back side included more information that scrolled out in even more windows. When I sent the prototype back to American Slide Chart in Chicago for a bulk purchase, they said, "This is the Mother of all thumbwheels!" While it may be low tech, it's tactile, and people we educate love to "mess with it." So, we still use it today to stimulate discussion among retirement plan participants.

On the front side, the wheel offers monthly contribution choices of $100, $250, $500 and $800 and then calculates what each level would accumulate to in 10, 20 and 30 years, assuming annual earnings rates of 5, 8 and 12 percent. While 12 percent might seem optimistic today, I designed the wheel at the tail end of a 15-year period when the average annual stock market returns had been 15 percent. Also, small company funds tend to beat the 10 percent overall market averages by 2 percent, so 12 percent for a risk-taker, even today, is not unreasonable.

Meanwhile, the wheel assumes that the amount dialed up as the monthly contribution equals 10 percent of monthly income. While it may seem high to some, that contribution amount would include any employer match or employer profit-sharing contributions. For the wheel's reverse side to work, we need to connect the contribution amount to a monthly salary so that we can calculate future Social Security benefits (with everything graded up for inflation).

On the back side, then, for retirement in 10, 20 and 30 years, we calculate a future retirement income need by increasing today's salary by 2 percent per year and assuming that 70 percent of that future projected salary would be required as an annual income at retirement. In addition, we have a projected amount to expect in Social Security benefits based on today's income levels graded up by annual 2 percent anticipated raises.

Again, the income used for all these calculations is established by the assumption that the initial annual contribution amount chosen on the front side was 10 percent of income.

For example, someone who dialed up a $500 monthly contribution, the income level is assumed to be $5,000 per month or $60,000 per year. In 20 years, earning conservative returns of 8 percent, the account balance accumulates to $294,510. The annual income on this amount (also calculated at 8 percent) would equal $23,609. The projected Social Security amount 20 years from now for someone making $60,000 today is projected at $32,500.

For the future retirement income need, the common estimate is 70 percent of the final projected income in 20 years (increasing at 2 percent per year). Today's $60,000 becomes $85,714 in 20 years and 70 percent of that would be $62,410. The shortfall (the gap between their needs and their income) works out to be $6,301 per year. In other words, if this is all the money that someone accumulates over the next 20 years, their retirement income (including Social Security) will be $56,109, which is $6,301 less than what we calculate to be their income need in retirement. That's not the end of the world.

The wheel also does these same calculations for alternate retirement time periods of 10 and 30 years from now, assuming that the selected time period starts today. What the calculator ignores is any other money individuals or couples might already have. A quick calculation is to add up all existing money and assume that by earning 8 percent, it doubles every nine years going forward. Add it to the 20—year figure cited above.

While all this gets clumsy, don't worry. Most financial institutions now have free online planning tools that allow you to plug in all of your existing assets, your future contribution amounts and your expected returns and retirement needs when the big day comes. Available at their home page, T. Rowe Price has one of the easiest to use. These online programs offer a more comprehensive and accurate glimpse of the financial future, but they lack the convenience of the thumbwheel -- something you can spin for inspiration during commercials without leaving your Lazy Boy.

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