How it’s Never Too Late to Start Saving for Retirement

October 27, 2014

RetirementPeople who haven’t saved money for retirement often avoid even starting out of fear that their efforts now will be too little and too late to make a difference.

In truth, it’s never too late to start saving for retirement.

Even if the money you save will be inadequate to provide a full retirement, it still has enormous potential to improve your life when your retirement years come. Here’s how:

1. Any Retirement Savings is Better than Nothing

Think about the times in your life when you didn’t have enough money saved – when having just a few thousand dollars put away would have made all the difference in the world. Those situations won’t stop happening after you turn 65. You’ll still have emergencies, and times when money is just a little bit short. If you have some money put away you’ll be able to ride out those rough spots in relative comfort.

While it’s true that you no longer have the years that have passed, when you didn’t put any money away for retirement, you do have the present moment. The money that you save between now and the time you retire will go a long way toward improving your life, even if retirement is just a few years away.

2. You Can Take Advantage of Tax-Deferred Investment Income

There are plenty of options for saving for retirement, even if you don’t have an employer-sponsored plan. Virtually anyone – especially people without employer plans – can take advantage of having their own IRA. Just as is the case with an employer-sponsored 401(k) plan, the money that you put into an IRA is generally tax-deductible in the year you make the contribution. Best of all, income earned on those contributions will accumulate on a tax-deferred basis.

This is a powerful advantage, and one that you should be taking advantage of if you can. Let’s take a look at the power of tax-deferred savings.

Let’s say you decide to invest $5,000 each year in stocks in a non-tax sheltered investment account, earning an average of 10% per year for the next 15 years. Your combined federal and state income tax rate is 30%. Because of the tax bite, the 10% per year that you are earning on your stocks is effectively reduced to 7%.

After 15 years, the account has grown to $125,648. Not bad.

But let’s take the same numbers, but assume that you put the money into a tax-deferred IRA, giving you the full benefit of the 10% annual average investment return.

After 15 years, the account has grown to $158,867. You’ll be ahead by $33,219 just because of the tax-deferral.

A tax-deferred retirement account, such as an IRA, can give you that advantage. And for what it’s worth, in 2014 you can actually contribute $6,500 per year to an IRA if you are 50 or older.

3. Even a Small Cash Flow from Retirement Savings Can Make a Difference

Let’s use the IRA example that we used above. We’ll assume that you began saving in your IRA beginning at age 50, planning withdrawals to start at age 65. Assuming that you withdraw at a rate of 5% per year – leaving the remaining 5% in the account to grow for future use – you’d be able to withdraw $7,943 per year, or $662 per month.

Now, $662 may not seem like much of a monthly income, but if you add it to your Social Security income, and maybe an income from a part-time job, you may have enough money to live on. Even if you do nothing better than semi-retirement, that’s a lot better than not being able to retire at all.

4. It Will Help Prepare You for a Later Retirement

If you haven’t saved much for retirement, you always have the option to delay retirement, giving you an opportunity save even more money.

There are at least three advantages to doing this, and collectively they are huge:

It will give you more time to save money. Delaying your retirement from 65 to 70 could make a big difference in the amount of savings you have. Continuing our IRA example once again, if you delay retirement from 65 to 70, meaning that you will have 20 years to contribute to your IRA, rather than 15, your IRA nest egg will grow to $286,382. That’s an additional $127,515 just for waiting five years, and continuing to make yearly $5,000 contributions.

It will reduce the number of years you’ll have to withdraw funds. One of the big concerns for virtually all retirees is the prospect of outliving your money. By delaying your retirement for a few years, you reduce the prospect considerably. If at age 65 you expect to live to be 85, you’ll need to provide for yourself for 20 years. But if you delay retirement to age 70, you’ll only need to provide for yourself for 15 years. The need for savings will decline substantially.

It will increase your Social Security benefit. For most people who are close to retirement, the age of “normal retirement” is 66 or 67. Let’s say that in your case, it’s 66. If you delay your retirement to age 70, the Social Security Administration will increase your monthly benefit by 8% per year. Delaying for the full four years will increase your benefit by 32%. That’s a lot of additional income just for delaying by four years.

5. Retirement Savings Can Be Used as a Large Emergency Fund

In the financial media of today it’s popular to project the need for multimillion-dollar retirement portfolios. And maybe that’s what’s truly needed in a perfect world. But let’s say that there’s no chance you’ll ever have a seven-figure retirement portfolio. Let’s say that all you’ll have is $100,000.

That may not be enough to provide you with an income during retirement years, but it’s an extremely generous emergency fund. If you could manage to get by on Social Security income and a part-time job, you’ll have your emergency fund to pay for major expenses and to cover you in those months when cash is short.

It’s not a perfect outcome, but it’s a lot better than having no emergency fund of all.

Do you ever feel overwhelmed at the thought of saving money for retirement, to the point that you choose not to do it? Have you ever thought about the advantages listed above? Leave a comment!


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Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

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3 Responses to How it’s Never Too Late to Start Saving for Retirement

  • Stephen Brian

    Awesome article and useful information and enjoyed your post. Really its very helpful Tips and thanks for share.

    • Kevin Mercadante

      Thanks, Stephen. I’m of the opinion that it’s never too late, and never hopeless – even if it isn’t what you’d hoped to have.

  • Melody

    Thank you so much for posting this. I think it is easy for us to get down on ourselves about our retirement saving history and then let that shame immobilize us. This is a manta that should be repeated regularly.