This is a guest post from Crystal of Budgeting in the Fun Stuff: A Personal Financial Blog about the Next Financial Step. It’s an open fiscal diary and a personal finance blog rolled into one.

According to this Yahoo! Finance article, $1 million is no longer the target retirement amount.

Scottrade polled 226 investment advisers and this is what they thought each age group should shoot for:

Ages 18-26 (Generation Y) – 77% of advisers responded that they should shoot for at least $2 million, 40% thought $3 million sounded better

Ages 27-42 (Generation X) – 46% thought $2 million, 22% suggested more than $3 million

Ages 43-64 (Baby-Boomers) – 35% suggested $2 – $3 million, 30% recommended $1.5 – $2 million

Ages 65 and above (Seniors) – 44% thought that $500,000 – $1 million would be enough

Let’s just say, I am not surprised that $1 million wouldn’t be enough for my generation. I was surprised that these adviser recommendations were so close to what we had already decided based on retirement calculators and our own personal conclusions.

According to these results, my husband and I should be shooting for about $2 million, which is exactly what we had already decided in addition to my husband’s pension. We figure that we will be able to live better than we do now off of 3% of those accounts plus 70% of my husband’s normal earnings, which is what the pension will supposedly provide. We are currently on the right track, but who knows what our investments will actually produce?

Well, no one can know for sure, but we use online calculators to help us determine what our future amounts might be (like this Roth IRA calculator or this 401k calculator). We calculate using an 8% rate of return on the Roth IRA and 401k since they are heavily invested in high-equity mutual funds. We then calculate using a very conservative 5% rate of return for our Scottrade account since this will be used to bridge the gap between our actual retirement dates and age 60…rather have too much than too little, right?

Did this article catch you by surprise? What were your retirement goals? Are you on track for the amount these advisers suggest?

Today’s guest post is by @FinEngr, fellow Yakezie member and author of Engineer Your Finances. He applies a background in engineering to personal finance. FinEngr gives readers a different perspective on money with the belief that everyone has the ability to reach their financial goals through education and continual refinement.

If you’ve been keeping up with Sweating the Big Stuff, you’ll know Daniel’s been hard at work funding his Roth IRA. He’s done a great job of adjusting his lifestyle to accommodate his aggressive investing goals, which leads in nicely to the topic at hand.

Most people understand the concept of compound interest and the benefits of starting sooner rather than later, but did you know you can squeeze EVEN MORE out of your investments by starting EVEN EARLIER?

That doesn’t make sense? How can someone so young start any earlier?

FRONT-LOADING

Plenty of friends ring in the New Year by starting on their resolutions or recovering from hangovers, but my big excitement is fully-funding my Roth IRA. While this may seem a bit much, it’s a preplanned event much like what was discussed in the defense is a calculated defense.

I recently had this conversation with a financial adviser whom I respect, partially because he’s an ex-engineer, but primarily because he doesn’t mind taking time out of his day to help young investors. I’m not even under his employer’s plan anymore, and we still trade emails now and then. Too bad there aren’t more like this in the industry.

He agreed, noting that it “should give your contributions a (generalized) 4% bump over time.” That’s pretty considerable. Especially since it involves no special investment knowledge.

Of course, it makes perfect sense applying the principles of compounding. Consider investments paying monthly or quarterly dividends. If you’re reinvesting those dividends, then the shares received are calculated based on the shares already owned. The earlier you have that money invested, the more shares you’ll receive. And the cycle continues each month, quarter, or year.

Although you’re not “spreading” your investments throughout the year, single years seem almost negligible when you’re considering decades, or half-centuries in Daniel’s case, of investing. There are plenty of (decent) articles out there refuting the idea. Actually, Warren Buffett has even been known to remark on the pitfalls of dollar-cost averaging.

There’s no set strategy either. Maybe it’s too nerve-wracking or simply unfeasible to get everything in all at once. Instead, maybe you shoot to get everything in before the first declaration date or semi-annual dividend.

Just to illustrate the benefits of front-loading, I went over to Dinkytown and plugged in some different scenarios into their Future Value Calculator. To “prove” the point, the only variable I changed was whether there were periodic deposits or a single lump sum.

I’m not sure why, but I spend the time making these different graphs and then scrap them anyway. At any rate, here are the parameters used:

Case A = $5,000 initial deposit
Case B = $416.67 monthly deposit ($5,000 yearly deposit / 12 months)

Scenario 1 = Compounded Monthly, 1.25% Yield, 1 Year
Scenario 2 = Compounded Quarterly, 3.5% Yield, 5 Years
Scenario 3 = Compounded Annually, 7% Yield, 10 Years

Drum-roll please… And the FV results were:

Scenario 1, Case A = $5,063
Scenario 1, Case B = $5,034
Difference of $29

Scenario 2, Case A = $33,741
Scenario 2, Case B = $27,357
Difference of $6,383

Scenario 3, Case A = $83,754
Scenario 3, Case B = $71,675
Difference of $12,079

These were my own concoctions so I urge anyone to go over and plug in their own numbers. What you will find is that any value, over time, should return more through front-loading than periodic deposits. Now, I believe that the adviser noted “(generalized)” because you need to factor in the positive AND NEGATIVE fluctuations of investments.

If the better return isn’t enough to entice you, let me offer a few other benefits in closing.

Being One-Year Ahead

Like I mentioned, the contribution is a planned event. The year prior is spent saving for that January deposit. As a side effect, holding yourself to this standard will help develop more savings discipline.

Other Opportunities

Checking anything off your financial to-do list allows you to explore other investments. Or spend more time with friends and family. Or whatever else it is that you enjoy. Point is, It’s just one little thing off your back that you won’t have to worry about.

Alright readers, now it’s your turn. What do you think of the idea? A worthwhile effort or too many holes in my assumptions? Do you think that “training” for this goal, whether it be your IRAs or 401ks, will better prepare you for other saving goals?

Earlier this month I fully funded my 2009 Roth IRA, and while I am going to contribute $5,000 to the Roth IRA in 2010, but I’m not planning on contribution all $5,000 at once. Starting in May, I am going to contribute about $300 every other week when I get my paycheck. By the time December rolls around, I’ll have contributed the maximum and reached my savings goals for the year.

Dollar-Cost Averaging is a strategy that gives you a good sense of the market over time, so you are not buying high and selling low, as so many people do.

If I had $5,000 on January 1, 2010 and $5,500 on January 1, 2011, it would be pretty clear how well I did: a 10% return on my investment. However, since most people don’t deposit money all at once and wait a year to see how it does, we need tools to figure out how we’ve done.

Before I assume that my $5,000 investment meant 10%, it’s important to take a step back and look at when I invested and how much at each point. Taking a deeper look into your investments can reveal much more than meets the eye.

By dollar cost averaging, we don’t contribute all $5,000 at once but over a period of time. Consider this situation: From January through October of 2009, I contributed $500 on the first of the month toward my IRA. Once I had $5,000 invested, I realized that I had maxed out my contribution and stopped investing.  On January 1st, 2010 I had $5,500, a $500 return. So how did I do with my investments?

Well, $500 made on a $5,000, so that must be 10%, right? WRONG

Since the amounts were contributed at different points of the year, we’ll use Excel’s XIRR function to figure this out.

This chart reveals that our 10% estimate was way off and we actually made 16.29% on my $5,000 investment!

Feel free to click on that chart and download it. You can plug in your own investments and dates and figure out how you’ve done this year.

After entering the amount invested and the date (add as many extra rows as necessary, remembering that your contributions should be negative numbers because that money is being subtracted from your bank account), look at how your annualized returns are doing. It gives you the best sense of how you’ve done so far, and at the current pace, how you would do over the course of a year.

Using this method is great if you don’t make contributions just once a year or if you are looking at a period of time other than full years. If you’ve been using dollar-cost averaging, you may be performing much different than you think!

On Monday, we have an interesting guest post that explores this further and teaches us to get the most out of our investments. Stay tuned!