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Retirement Planning in 2012 — Play Lotto, Hope Rich Aunt Millie Put You in the Will

There are some cheery economic metrics out these days — housing starts just hit a four-year high in September, jobs data continues to slowly improve and consumer confidence recently hit its highest mark since 2008.

But all those numbers mean nothing in the greater scheme of retirement planning.

At the end of the day, your golden years will be defined by how much money you managed to save and how you can make it grow. And the sad reality is that for many folks, “retirement planning” involves waiting for your rich uncle to die or hoping you hit Mega Millions.

Our neighbors to the north recently conducted a poll revealing that one-third of Canadian respondents are relying on “winning the lottery or receiving a large inheritance” to provide for retirement. Specifically, “Nearly two in ten, or 18 per cent, of those polled say they believe winning the lottery will contribute to their financial plan, while one in 10, or 10 per cent say they expect a large inheritance to help out.”

Before you go and mock Canadian retirement planning, consider that a similar survey was conducted here by TD Ameritrade (NYSE:AMTD) with equally troubling results. This from NewsMax:

“About 40 percent of Americans aged 13 to 22 years expect to receive an inheritance and add they don’t believe that they will have to save for retirement, the study found. However, only 16 percent of parents said they expect to leave behind an inheritance to their children.”

Who the hell are these people? And when are they going to live in reality and think about retirement planning in real terms?

According to a comprehensive 2010 study, 75% of Americans nearing retirement — that means excluding twenty-somethings without a 401k plan yet — had less than $30,000 in their retirement accounts.

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According to a survey by the Employee Benefit Research Institute, almost half of Americans are worried about retirement. About 24% of Americans are “not too” confident in their retirement prospects, and about 23% are “not at all” confident, according to the 2012 EBRI report.

According to a piece earlier this year in the Sunday Review of The New York Times, “almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.”

In other words, waiting to hit the lotto hasn’t worked for previous generations of retirees, and it certainly isn’t going to work for this one.

Get to work, people. Saving just $500 a month for 40 years with a 3% annual return nets you about half a million bucks after compound interest. And there’s a good likelihood that, with a little work and financial planning, you could save even more or generate bigger returns.

If you like the long-shot odds of the Powerball or an unknown relative bequeathing you with a Scottish castle, that’s fine. But the cold, hard math of compound interest seems a much more reliable way to plan for retirement.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

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