- \ Gerard Gruber
- April 19, 2022
Have you ever been charged a late fee for something you could have totally avoided? A late fee for those books from the library. A reinstatement fee for an expired vehicle registration. Missing out on early-bird pricing for a conference.
Have you ever been charged a late fee for something you could have totally avoided? A late fee for those books from the library. A reinstatement fee for an expired vehicle registration. Missing out on early-bird pricing for a conference. Missing out on the hot seats for the concert because you didn’t grab them when you had the chance. It’s irritating, but it happens to all of us from time to time. We’ve grown accustomed to being penalized for procrastination.
Retirement planning is no different. The earlier you start planning for retirement, the better off you’ll be. We know this logically, but beginning to save for retirement is much easier said than done for many people.
The biggest obstacle to successful and effective retirement planning may be nothing more than procrastination.
When we consider the actual cost that procrastination can have on your retirement planning, though, we see how important it is to shift our thinking. We’re going to look at the reasons people delay saving for retirement, the actual cost of delay in retirement savings, and how to take action today to prevent these high costs of procrastination.
Why Procrastinate?
There are several reasons that people put off retirement planning. Understanding the cause of your procrastination can be the first step in getting over it and taking action.
In some situations, people may not feel like they can afford to save for retirement. And frankly, they may be right! When someone’s life circumstances have them depending on tomorrow’s paycheck to put food on the table today, it truly may not be the right time to begin saving for retirement. If your basic needs are being met, though, it’s important to prioritize your retirement planning right away.
For others, it’s simply a matter of not knowing where to start. A lack of financial literacy can easily cause someone to delay their retirement planning. This is especially common among young workers who haven’t had the opportunity to learn about financial planning or retirement topics.
Besides, everyone just loves to make financial decisions in the midst of new employment, right?
Between the excitement of new employment and a lack of financial confidence, it’s all too easy to just “set that paper aside” and intend to get back to it once things settle down. The problem is that many people don’t get back to those retirement planning decisions for years.
What’s the Big Deal with a Little Delay?
The cost of procrastination in retirement planning is huge. In fact, even a short delay in starting to save for retirement will probably alter your overall retirement strategy. Compound interest is one of the most powerful tools we have to build wealth over time, but it only works if you give it time to work.
At the foundation of any investment strategy, you’ll see three factors at play: time, contributions, and interest. Falling short in any one of these areas results in a need to emphasize the others to make up for the deficit. The longer you wait to save, the more aggressive you’ll have to be both in contribution amount and risk tolerance to make up for the lost time.
Consider this example:
You are 25 years old and decide to start saving for retirement. You want to have $1,000,000 saved at retirement. With 40 years of growth ahead, assuming an average return of 5%, you’ll need to contribute about $650 each month.
Now let’s say you waited just five more years to start saving. You have the same $1,000,000 retirement goal, but because you started at age 30, you only have 35 years for your money to grow. To reach your same goal with the same rate of 5%, you’ll need to contribute about $1,200 per month. The five-year delay requires that you nearly double your contributions.
A truncated timeline to save means a much more aggressive approach must be taken.
But I’m not 25 anymore…
It’s never too late to start saving. The best time to start was 20 years ago, but the second-best time is today.
If you’re nearing retirement and don’t have much saved, there are still steps you can take. The most important thing is to take action today. Regardless of where you are in your career, it’s never too late – or too early – to start saving for retirement.
How to Prevent Retirement-Planning Procrastination
While procrastinating to save is common, it is also avoidable. There are a few key things you can do to prevent procrastination in your retirement planning:
- Start small. Saving for retirement doesn’t have to be – and shouldn’t be – an all-or-nothing proposition. If you can only afford to save $500 per month, that’s okay! The important thing is that you start today and increase your savings as your income grows.
- Review finances whenever the opportunity arises. Starting a new job is an amazing time to revisit your retirement planning strategies. Allow that to be a celebratory process. After all, our eventual retirement is a huge reason we go to work each day!
- Get professional help. A financial advisor can offer guidance and support as you work towards your retirement goals.
The bottom line is this: don’t let procrastination get in the way of your retirement planning. Small steps today can translate into huge retirement strides in the future.
If you suspect you might be behind on saving or are wondering how much you’ll need to retire on your desired timeline, we’d be happy to take a look at your plan and offer our opinion.
My name is Gerard Gruber. Not only am I the President of Harbor West Financial Planning and Wealth Management in Westport, CT, but I am The Retirementalist. What does that mean? I specialize in helping pre-retirees all over the country prepare for a financially sound and personally rewarding post-working life. If you need some assistance in this area, let’s chat.
Schedule a call with me here today.
There are no do-overs in retirement planning. The sooner you get started, the better off you’ll be.
This information is for general purposes and is not intended to provide specific investment advice or recommendations. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Individuals should always consult their own financial or tax advisor regarding their specific situation before acting on any information provided. Harbor West and Geneos Wealth Management, Inc. do not provide tax or legal advice.
Securities and investment advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC