how to rest easy in retirement

when i was 25, i thought i'd retire a millionaire at 30. at a more conservative 30, i figured i'd be a millionare by 45. now, while i'm pretty sure that i'll be a millionaire at some point, the exact date seems to slide.

at 25 i wasn't too concerned with retirement accounts -- that stuff is for old ladies, i thought -- and besides, i wouldn't be able to get at that money until retirement age without some stiff penalties. i didn't care about it then because i was going to build a company that would change the world. i worked some crazy long hours back in my 20s and spent quite a lot of cash blowing off steam (i would reason that it was necessary after those crazy hours), and didn't contribute much at all to my retirement . . . why bother, when i'd have enough money after i cash in on the next big thing?

5 years later after basically treading water retirement-wise and not being part of the next big thing, i started paying closer attention to my retirement accounts. i started contributing 10% of my income to my employer's 401k plan and maxed out contributions to my roth ira. while it's not a huge nest egg, it's at least a nice place to put money for my old age.

401k plans (and iras) are nice in that they are tax deferred. you get a break on your taxes today because they reduce your taxable income -- you pay taxes when you take the money out in retirement. the thinking is that you're in a higher tax bracket today when you're making money than in your salt-and-pepper days when you're not working. pretty sound reasoning. employers often make matching contributions, too, which is essentially free money.

roth iras (and roth 401ks) are a bit different. you put after-tax dollars away, but the money grows tax free, making it a perfect vehicle to experience the magic of compound interest. if time is on your side, i don't know that you can beat that kind of magic.

i've heard of a method where you pay your children and have them contribute their earnings to a roth ira. i know there is some speculation out there about this, but to me it sounds like the perfect way to help them save for retirement. it would require you to actually pay your children -- that is, you would have to submit a 1099 or w-2 tax form to them and the irs for work that they have done. they would have to file taxes as well, but now that the legalities are out of the way, they can contribute those earnings to a roth ira. even with the most conservative portfolio, because they have time on their sides, their contributions would likely be worth well over a million dollars when they reach retirement age. there are all sorts of calculators and things online to predict this . . . try one with one or two contributions at age 13 or 14. that's the power of compound interest.

so, now all i have to do is build a turn-back-time machine, go back in time to when i was a kid, get the roth ira on the books (it didn't exist back then), convince my parents to pay me for household chores (ha!), contribute to a roth, convince my past self not to break into that roth for any reason, and return to the present . . . and i'd be able to rest easy in retirement.