Retirement...the big variable

There are 8 major variables to the final balance of your retirement account before you start drawing from it (preferably while financially free!).

1. The age at which you start saving. Obviously the sooner the better; not just because of compounding but also because of the time and risk trade-off.

2. One's willingness to stay the course. By this I mean automatically investing $X per month/paycheck into your investment strategy. This will smooth out your drawdowns over a long period of time.

3. The date of retirement. The further out you push retirement the more certainty there will be that the assets will last a lifetime. If you work 2 extra years, that's a positive on two fronts: you don't draw out of your retirement account, and you grow the amount of income you will receive during a shorter period of time.

4. Salary. The more one earns the easier it is to save for retirement. Your employer match on a $40,000 salary is only half of an $80,000 401k employer match. This can compound to a substantial amount over 25 years. The match plus growth on the match can be over $200,000; this does not include the amount the employee has contributed.

5. Employee's contribution. A general rule of thumb is that if you defer consumption, you end up richer than the guy who could not wait. Add to the account as much as you can without affecting your lifestyle in a drastic way.

6. Asset mix. Diversification is one of the most ubiquitous terms used when it comes to investing. There is a balancing act between safety and the need to grow assets for retirement; thus, investors diversify across stocks, asset classes, and even time periods.

7. Fees. If you're in a 401k, make sure to check what all the fees are. The mutual fund or pooled investment units (for those in a Group Annuity) can get quite expensive. Not dissimilar to a traditional business model, your expenses eat away at your bottom line, which in this case is your rate of return. You can't write off fees you paid to a mutual fund company through their expense ratio, but you can write-off fees paid to a money manager (Registered Investment Adviser).

8. Withdrawals before age 55. Cashing in is extremely costly and will devastating effects on your long term savings plan. The IRS charges a 10% penalty to those investors who withdraw before age 55, PLUS ordinary income tax on the entire amount cashed in. Ask your adviser about other options before pulling the money out.