How Waiting to Invest Could Crush Your Retirement

October 12, 2012

As a general rule of thumb, procrastination is not a good idea. You’re waiting to do something that deep down you know you really should get started on. You delay on the important class paper. You delay on having the tough conversation with a friend. And naturally, you want to delay beginning to save for retirement.

It’s completely understandable. Retirement is a long way off and investing for your golden years isn’t cut and dry. There are so many factors to consider: pay taxes now with a Roth IRA or pay them in retirement with a Traditional IRA? Where should I open an account? How much should I be saving? When can I retire? It’s like trying to apply for a job without having understood the 15 page job description.

So you put it off. You wait another year. You avoid making significant changes in your life because change is painful even if it is good for you. But just like you burned the midnight oil finishing that paper or how you felt after you had that tough conversation with that friend, delaying your retirement investing can crush your retirement dreams.

Why Waiting to Invest Hurts Your Retirement

It can be daunting to get started investing for retirement, but waiting can crush your grand retirement plans.

Let Compound Growth Work for You

By delaying your retirement saving you are reducing the amount of time that compound growth has to assist you in your portfolio’s growth to retirement. How important is compound growth?

If you start saving for retirement at age 25 and save $5,000 per year into a Roth IRA for 10 years, never contribute again, and earn a consistent 7% return until you turn 65, you will end up with $642,796. If you delay starting until age 35 and save $5,000 every year until your retirement age of 65 while earning the same 7% return, you end up with $585,479. Even though you contributed 3 times as much in the second scenario ($150,000 vs. $50,000) you end up with $57,317 less.

Catch Up Contributions Won’t Save You

In Traditional IRA and Roth IRA accounts you are given the ability to contribute extra money each year once you hit age 50. But the catch up contribution is only $1,000 more bumping up your total contributions to $6,000 in those types of accounts. (You only get to put in an extra $500 in your 401k as well.) That $6,000 contribution from age 50 to your retirement at age 65 only boosts your account value up to $612,366 (assuming you earn the same 7% return). You put in an extra $10,000 in contributions and are still behind you would have if you had started early and only saved for 10 years.

How to Stop Procrastinating on Retirement Saving

Found some motivation and want to get started? Kicking off your retirement investing doesn’t have to be complicated:

Research Account Types and Open One

Before you can put money into an account, you have to have an account open with a brokerage firm. Your choice of brokerage firm will depend on what type of an account you want to open: a Traditional IRA, a Roth IRA, or a taxable investment account. Learn the differences between all of the accounts and open your account.

Set Up Automatic Contributions

One of the single most powerful things you can do to ensure successful retirement account growth is to set up automatic payments into the account every month. Your brokerage firm will gladly set up a plan to automatically take a certain amount of money out of a checking or savings account every month. Automatic contributions take the emotions out of investing and help you keep your investing plan on track.

Select Investments

Once you put money into your account you need to decide which investments to place the funds into. The easiest choice is a target retirement mutual fund that will automatically adjust the asset allocation to be less risky as you get older. Instead of having to balance between stock and bond mutual funds, the target retirement fund makes those choices for you.

Don’t delay. Not only do you not have an excuse to not get started (investing companies make it incredibly simple), but delaying will ruin your retirement dreams. Get started saving for retirement today.

Have you delayed saving for retirement? Why? Leave a comment!


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Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He's building a personal finance freelance writing career and has written for, Discover Bank, ING Direct, and many others.

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