Putting off saving for retirement is like throwing a boomerang at your future self – it’s gonna come back and smack you right in the golden years. The decision to save for retirement isn’t a future consideration; it’s a crucial present action with significant long-term consequences. 

Retirement planning is a critical aspect of financial well-being, yet many individuals fall prey to the insidious habit of procrastination. While it might seem harmless to delay decisions about retirement, the long-term consequences can be significant. Let’s delve into the effects of missed opportunities resulting from procrastination in retirement planning. 

A 2007 study by the American Psychological Association found that 94% of people indicated that procrastination had a negative effect on their happiness, with 18% indicating that this effect was extremely negative.  The research article Saving for Retirement, Annuities, and Procrastination found that procrastinators took 73 days longer to join the company retirement plan.  When they did, they saved less of their annual income than others while also only choosing the default investment options in their plan.    

Missed Opportunities 

One of the most significant dangers of retirement planning procrastination is the risk of not saving enough money to maintain your desired lifestyle during retirement. When you put off investing or contributing to retirement accounts, you miss out on the power of compounding. Even small delays can have a substantial impact on your nest egg. Start early, contribute consistently, and take advantage of employer-sponsored retirement plans and individual retirement accounts (IRAs) to build a robust financial cushion for your golden years. 

The chart above illustrates a simple story about Jack and Diane.  The difference between the song and the couple in this chart, is that while Jack ran off to the big city, Diane stayed home and was able to start investing five years before Jack could.  You can see the impact of procrastination over 30 years of investing. 

The sooner you start saving and investing, the easier it will be to accumulate wealth.  Compound interest occurs when you earn interest not only on your initial investment but also on the accumulated interest earned from previous periods.  This compounding effect leads to exponential growth in your savings or investment account over time.  Even small contributions to your investment accounts can grow significantly over time. Waiting too long means missing out on potential gains and delaying your financial progress. 

Imagine a snowball rolling downhill. It starts small, but with each revolution it gathers more snow, growing exponentially larger. Compound interest works in a similar way.  It’s the interest earned on both the initial principal amount you invest and the accumulated interest from previous periods.  The longer your money is invested, the more time it has to compound, generating a snowball effect that significantly increases your retirement nest egg. 

Inflationary Erosion 

Another critical factor to consider is inflation, the gradual increase in prices over time. A dollar today won’t buy the same groceries or pay the same rent ten years from now. Inflation silently erodes the purchasing power of your money.  Let’s say you estimate you’ll need $50,000 annually to live comfortably in retirement.  Using historical inflation rates from 1994 to 2024, the average inflation rate was 2.54 percent while the cumulative inflation rate reached 111.63 percent!  At the end of this 30-year period, that same standard of living came closer to $105,815.   

If you were to delay saving for retirement, this would mean your money has less time to grow and keep pace with inflation, potentially forcing you to work longer or significantly reduce your desired lifestyle in retirement. 

Missed Tax Benefits 

Procrastination also impacts your ability to plan for retirement risks, such as tax risk – which is a signficant risk to consider if you’re looking to design a tax-free retirement plan. 

When you contribute to a traditional 401(k) contributions are pre-tax, reducing your immediate tax liability. It grows tax free; however, you have to pay taxes on that growth when you withdraw funds. In contrast, with a Roth 401(k), you pay taxes upfront. This means the income you allocate to the account is already taxed and not only does it grow tax free, but you can withdrawal from it without incurring a tx burden. You can only put so much money into these accounts each year, so procrastination can lead to missed opportunities for this tax-free growth. 

Remember to think about retirement as the long game (Axiom 3).  If you have time to plan for and take advantage of tax efficient assets, such as a ROTH 401(k) account, you will be better off in the long run.  Longterm planning exposes us to Longevity Risks. The longer we live, the more likely we are to see taxes go up.  

Overcoming Procrastination 

Now that we’ve highlighted the pitfalls, how can you overcome procrastination in retirement planning? 

1. Do something now! Read another Blog entry. Make an appointment with a financial planner. Do something (anything) that will move you to action. 

2. Set Clear Deadlines: Instead of thinking you have years to decide, set reasonable deadlines for making financial choices. Commit to acting on decisions within days or weeks, not months or years. 

3. Prioritize Retirement Savings: Don’t wait until you are debt-free to start saving for retirement. Embrace “good” debt (like mortgages) while ensuring you allocate funds toward retirement accounts. Your house won’t provide retirement income; your savings will. 

4. Educate Yourself: Learn about Social Security, investment options, and tax implications. Knowledge empowers you to make informed decisions. 

5. Create a Written Financial Plan: Put your retirement goals and strategies on paper. A well-defined plan helps you stay accountable and focused. 

6. Seek Professional Guidance: Consult a financial advisor who specializes in retirement planning. They can guide you through investment choices, tax optimization, and risk management.