Wanna retire rich? Don't spend like Britney

Whether you're worth $100 million like Ms. Spears or $100, the same simple strategies can help ensure a comfortable retirement.

NEW YORK (Money) -- In case you missed it, some bombshell news came out of the personal finance arena last week. No, I'm not referring to the Federal Reserve's rate cut or the record-breaking price of oil.

I'm talking about Britney Spears: She isn't saving for retirement.

Money Magazine senior writer Janice Revell

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Though the 25-year old pop star is hauling in some $737,000 a month (yes, per month), the Associated Press reported last Thursday that according to court documents, she's not saving or investing a penny of it.

More than $100,000 each month is going to entertainment, gifts and vacations alone.

While most of us may be shocked by this excess, Ms. Spears' saving habits are actually pretty normal.

The truth is, the overwhelming majority of American 20-somethings aren't saving anything for retirement, either. Research from Vanguard shows that two-thirds of all 25-year-olds who have access to a 401(k) plan aren't contributing.

And the worst part is, they aren't taking advantage of their biggest asset: time.

Let's go back to Ms. Spears' retirement plan for a minute. Now I know that she's richer than you and I, worth in the neighborhood of $100 million from her previous sales and touring (she didn't always spend it all). But let's say she was forced to start from scratch, like any other 25-year-old. She could still maintain her lavish lifestyle in retirement.

Assuming she could scrape by on 70% to 80% of her pre-retirement income in retirement - or about $590,000 a month in today's dollars - Ms. Spears would have to accumulate a nest egg of just over $300 million by age 65.

Sound daunting? Nah. All she has to do is keep working and put away 8% or so of her monthly $737,000 income until she retires and she'll hit that goal.

So what's the point of this exercise? Well, the very same strategy can work for you too.

Being sure to set aside just a little each month can help you maintain your lifestyle in perpetuity.

A 25-yr old making $30,000 a year, for instance, and putting away the same 8% of his pay into a 401(k) plan annually for the rest of his career is virtually guaranteed a comfortable retirement by time he hits his 60s.

Assuming average historic rates of inflation and investment returns, and a typical company matching contribution in his 401(k), he would wind up with a nest egg of nearly $2 million by age 65, enough to replace more than 90% of his working income.

I realize that, unlike Ms. Spears, you may also have student loans to pay back at this point in your life. But unless it's a private loan, don't sacrifice your 401(k) contribution to make extra payments on the loan. If it's a federal loan, and you've consolidated it, you likely have a fixed after-tax rate of 5% or less. Over the longer haul, you will handily beat that return in your 401(k); if you get a company matching contribution, you'll trounce it.

And you don't need to hire a team of people to handle your investments. Just put your 8% in a so-called target-date retirement fund - every major fund company offers them, including Fidelity, Vanguard, and T. Rowe Price.

Here, you make your fund choice based on the expected year of your retirement. For instance, if you were planning to retire in 40 years' time, you might pick the T. Rowe Price Retirement 2050 fund. Right now, it has an 88% allocation to stocks, 10% to bonds and the rest in cash.

As time passes, and you get closer to retirement, the fund will automatically adjust that mix of stocks and bonds to more conservative levels. The best part with these funds is that you do nothing.

And that means you'll never have to say, 'Oops! I did it again' when it comes to your retirement.

Questions or comments about retirement? Send e-mails to jrevell@moneymail.com. 

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