Procrastination Can Cost You

Putting off retirement savings is a missed opportunity

Most people start saving for retirement at 35—fully 10 years beyond the ideal age, according to a recent Financial Engines survey.¹ Reasons to procrastinate are familiar to many.

But delaying your savings can be costly, as the chart below shows. Let’s say Tom starts saving 6% of his $36,000 salary at age 25. With a reasonable rate of return and adding to his contributions each year, Tom could have close to $500,000 by age 65.

Jeanelle waits until 35 and will need to contribute twice as much—12% of her yearly salary—to achieve the same goal as Tom. Ernesto, who waits until 40, has a steeper hurdle: The amount of annual contribution required to build a $500,000 retirement nest egg rises to 16.5%.

Why does the investor have to make higher contributions the longer he or she waits? The simple reason is lost opportunity, in a few forms.

• The loss of compounding – When your money earns a return, that return is added to your original investment and earns even more money. That’s compounding.
• The loss of company-matching contributions – If your company matches your 401(k) or 403(b) contribution, it will add a certain percentage to your contribution each month. This is basically free money for you.
• The loss of annual increases in contributions – If you are not increasing your contributions, you lose the potential for investment growth on those higher amounts.

Putting things off is human nature. But it’s never too early or late to start to save, and waiting until your late 30s or early 50s doesn’t cause irreversible damage to your ability to build a nest egg. It just means you may have to contribute more to your retirement account than you would have if you started earlier.