Are you financially prepared for retirement?

It is a great question to ask. Many young people in their 20s and 30s believe that saving for retirement is something that can be delayed for many years to come. “I will start thinking about that when I reach 40,” is a common thought by people in this age group.

The power of compound interest, however, shows that the earlier one starts investing for retirement, the better prepared they will be. After counseling and teaching thousands of people, I have seen how unprepared many are for retirement.

Here are some common situations that I see, and my recommendations for each situation.

The “I am going to win the lottery” approach. Good luck with this approach. According to the Web site for the Powerball lottery, the odds of winning the top prize are one in 146,107,962. I would recommend that the lottery money be invested in good, growth-stock mutual funds within a tax-advantaged retirement account.

The “My company only matches 3 percent of my pay, so it is not worth investing in my company retirement plan” approach. This just does not make sense. The 3 percent match is FREE money. FREE! I recommend that one invest at least enough money to catch the entire company match.

The “I am only going to invest enough to catch the company match” approach. The amount that a company will match varies widely, but the vast majority matches seven percent or less. Seven percent is not enough to retire well. It is my belief that if I want to retire well, I need to invest 10 percent of my gross pay into tax-advantaged retirement accounts. To retire well, I need to invest 15 percent of my gross pay. This investment does not include the company match. I view the match as a bonus.

It is my goal to invest at least 15 percent of my gross pay every single year. There is a serious reason for this goal.

I believe that people under the age of 40 are at serious risk of receiving reduced Social Security benefits. The Social Security Administration sends me an annual statement of my “expected benefits.” This wonderful statement says that if I continue to earn the income that has been reported, I can “expect” to receive a set monthly amount. Why all of the quotes? Because on my statement, it has an asterisk next to the number. Follow that asterisk to the bottom of the form, and there is a paragraph that states that with its current and expected obligations, the Social Security Administration will only be able to pay out about 70 percent of the “expected” number.

I am making a bet that that percentage will drop as I age. As a result, I am making the financial sacrifice now to ensure that my family is prepared for an excellent retirement.