I know this is a little off base from my usual posts about software, technology, and startups, but hear me out because it's important. You might think that if you work hard, are good at your job, and you save some money in your 401(k) every year, you'll be in good shape to retire in 25, 35, or 45 years. The baby boomer generation assumed this formula would work, and now the average retiree only has enough money for $230 per month in retirement.

Where did retirement go?

In our grandparents' generation, retirement was less of an issue. Companies still handed out pensions, but now as private corporations have almost completed eliminated pensions and cash-strapped municipalities are going to have to start dropping them too, the retirement game has changed. Our parents' generation felt the worst of this because many of them assumed that a 401(k) was essentially the same as a pension, but the difference is massive and practically significant.

A pension is a guaranteed income for life after you retire. Usually it requires a number of years of service or a certain paygrade to qualify, but it's safe and secure (so long as the company backing it stays solvent).

A 401(k) on the other hand is essentially just a tax-sheltered shell around your money. Sometimes your employer will contribute, but you'll likely put more in yourself. This shell often limits how you can invest your money, but even if it doesn't, you have to make the decision about what to invest, and you have to hope you get it right. If you do, you might have enough saved to retire on, but if not, you might be forced to live off your children or massively downgrade your lifestyle.

The importance of saving as income

The problem is that people don't think about how important their financial decisions are. Let's take a quick look at how much money you might make in your lifetime.

If you made $50,000 every year for 45 working years, you would make a total of $2,250,000. Obviously you'll use much of that income to live on, but if you're smart, you'll save some. Let's say you're pretty conservative and you can save $10,000 every year. That $10,000 per year will turn into a total value of $2,800,000 by the time you retire, and the mind-blowing thing about that is that $2,400,000 of that money was generated from interest alone. With that much money in the bank, you could withdraw $50,000 per year for the rest of your life and still have a ton left over when you die.

In short, it is possible to make more income off your savings than you can by working.

Now, the example above assumes some things. First, you will need to get an average return of 7%, which means that you can't just put your 401(k) money into bonds or something super-safe. Second, you'll have to live pretty conservatively to sock away $10,000 every year when you only make $50,000, but the good news is you don't need to save nearly that much if you just want to live the same lifestyle you currently have. In fact, if you saved that much, you could probably retire early or enjoy a massive upgrade in lifestyle when you retire.

The point is though that your financial plan is at least as important to your lifetime income as your salary.

So how do you figure all this stuff out?

Most middle-class people spend 4+ years and tens of thousands of dollars going to college because college helps you make more money over the course of your lifetime. Unfortunately, not many people spend more than a cursory glance every year thinking about their long-term financial plan. That's crazy to me because if you can make more money saving and investing your money than you can working, you should look at time spent learning about personal finance as an invaluable investment in your future.

Start reading (Gale MarkJarvis' Saving for Retirement is a great place to start), start reading some personal finance blogs (Get Rich Slowly is good), and invest some time every month to getting your finances together. It may seem like a long way off, but financial education doesn't just magically come with age, and you can't count on financial advisors to actually recommend what's right for you. If you ever want to quit working, save for a house, or invest in your childrens' education, getting things in order is essential, so start today.

Have your own favorite personal finance resources or book recommendations? I'm always looking for new reads, so shoot me a message on Twitter.