“Never put off for tomorrow, what you can do today.” You’ve probably heard this before, perhaps accompanied by a finger wag or two. It’s great advice… in theory. Putting it into practice is another story.
Procrastination affects all of us at some time or another. Especially when it comes to financial matters. Are your taxes done? Do you have an ever-growing stack of papers on your desk that you’ve been meaning to go through? Rolled over that 401(k) from your last job yet? We all do it, but there are some good reasons not to procrastinate (no, we did not just wag a finger!).
We recently conducted a survey to better understand financial procrastination, and found that more than two-thirds (68 percent) of adults age 55 or older admit to procrastinating on retirement planning. On average, those surveyed said that 25 was the right time to begin planning for retirement. In reality, though, they started planning an average of 10.6 years later than they said they should have.
Here are the top five reasons survey respondents cited procrastinating on retirement planning:
• 50% blamed stress for their procrastinating
• 40% said they had higher priorities, even though they were interested in retirement planning
• 24% were worried about being taken advantage of
• 23% were not sure how to go about it
• 20% believed it was too difficult
So what does procrastinating for a decade cost? We created a hypothetical scenario to show what’s at stake. To do that, we looked at the amount invested in a company 401(k) plan plus company 401(k) match and growth for savers starting at different ages—25, 35 and 40.
A saver who starts contributing six percent of pay at age 25, combined with a 401(k) match of three percent from their employer, and experiences typical market returns could have close to $500,000 at age 65. Savers starting later can reach that same portfolio value, but making up for lost time will cost them more. The earlier you start, the better are your chances of getting your employer’s 401(k) match and compound growth working for you.
Some procrastinators think that they can make up for procrastination by saving more later in life. While this is possible, they’ll need to save enough to make up for missed past contributions, their missed 401(k) match AND any missed investment growth. That’s a lot of saving. Savers starting at age 35 would have to save 11.69% of their salary to catch up to a 25 year old saving 6% of salary. A saver starting at age 40 would need to save 16.44% to have the same amount at age 65.
Check out our infographic to see more on the cost of financial procrastination.
Feeling inspired to stop procrastinating? Wherever you are in the saving (or procrastinating) spectrum, there’s no time like now to start planning for retirement. Your retirement vision may change a little based on when you start saving, but retiring well is still within reach—no matter what age you start.
1 In the hypothetical scenario, we calculated the starting salary as $36,000 at age 25 and increases by 1.5% (net of inflation) per year, with the increase occurring at the end of each year. Contributions are made at the end of each year. A 3% company match is added to the savings amounts shown and is also contributed at the end of each year. Investments grow at a rate of 5% (net of inflation) per year. Under these assumptions, an individual who starts saving when they turn 25 will have accumulated a portfolio balance of $483,776 by the time they turn 65. The savings rates for individuals starting to save at ages 35 and 40 were calculated so that they will have the exact same portfolio balances (i.e., $483,776) when they turn 65.