Quit Smoking to Pay for Retirement?


As the economy continues to decline, federal cigarette taxes are shooting up to $1.01 a pack.

Now cash-strapped smokers are finding that they need to make a choice. 

“I’m too broke to smoke,” says Emily Mayer, 23. “But it’s more stressful to try to quit.”

Mayer doesn’t plan to quit anytime soon, but there are some benefits to being a quitter, especially when cigarettes cost $10 a pack (or more) in places like New York.  A pack-a-day New York City smoker who quits could save $3,360 a year. Even someone who takes a whole week to go through a pack could save $480.

And that’s just counting money spent directly on cigarettes. Typically, smokers pay more for health and life insurance, see the resale price on a home or car depreciate and spend more money on dry cleaning and teeth whitening.

It is not easy. But if you can nix your need for a nicotine fix, here are some ideas on where to put that extra $1,700.

1. Pay off your credit cards. There’s no better way to use your cigarette money than to use it to pay off debt, says Mickey Cargile, managing partner of WNB Private Client Services based in Midland, Texas.

A pack-a-day habit can run you as much as $200 a month in some states. If you put that same amount toward a $5,000 Visa (Stock Quote: V) or MasterCard (Stock Quote: MA) bill, you’ll be able to pay off the principle on your card in about two years.

2. Open a savings account. If you have a pack a day habit, you could spend more than $50 a week for a fix. That may not sound like big money but, if you were to invest $50 in a savings account at 2.75% interest, you could have as much as $2,517 at the end of 12 months. If you save the same amount consistently for five years, that figure could jump to more than $13,000.

3. Look into a traditional IRA. Take your weekly smoke money and put it into an IRA. You won’t be able to touch it until you retire, but if you start an IRA with as little as $200 now, and keep investing the same each month, you could end up with more than $250,000 at the end of 30 years. 

If you’re looking to start an IRA today, you can do so online through sites such as TD Ameritrade (Stock Quote: AMTD), and Charles Schwab (Stock Quote: SCHW).

However, if you want to talk to someone about whether or not a traditional IRA is the right investment for you, speak to a financial advisor first. You can find a list of financial advisors through the National Association of Personal Financial Advisors web site.

4. Invest in a mutual fund. Take the savings and invest in a mutual fund. Although it’s true that the market has had more downs than ups lately, wealth managers such as Cargile are adamant that it is the best investment for the long haul.

“Returns on mutual funds have averaged 7% a year in the last 50 years,” says Cargile. “You can never tell what the market is going to do, but it’s reasonable to assume that returns will continue to average around 7% in a 20 year period.”

That means that, presuming there’s no stock market crash (and that you keep depositing $200 into the fund), you can wind up with assets in excess of $100,000 after 20 years. That’s more than 22 times what you would have spent on cigarettes over the same period.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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