Procrastination can make even simple tasks downright ugly. Ignore your festering oven and you'll eventually spend hours scraping off burnt pizza cheese. Put off that dentist appointment and risk an extra-long session in the chair as the hygienist scrapes away with that metal pick.
When it comes to retirement savings, the longer you wait, the bigger the bite you'll have to take out of your paycheck to catch up.
Take the recommendations produced in a study recently reported in the Journal of Financial Planning. The group of researchers crunched a whole bunch of numbers to establish recommended savings rates for people at various ages and incomes, assuming they hadn't already started saving for retirement.
Ballooning savings rates
Not surprisingly, they found that it pays to start early. They concluded that a critical shift happens between ages 35 and 40. Start accumulating your retirement nest egg after age 40, and you may have to take quite a significant bite out of your paycheck to make up their retirement shortfalls -- or rethink your retirement plans.
If you haven't started saving for retirement, take a gander at these numbers. They show the amount the authors suggest you start saving in order to replace 80% of your income (less retirement savings) in retirement. If you make $60,000 a year, the researchers suggest you save a pretty modest 12% if you begin at age 25. Start a little bit later, at age 30, and you'll have to save a manageable 15.6%.
Then the numbers really start to go up. Wait until age 35, and you'll have to save 19.6% of your income, and if you put off the task until age 40, it would serve you well to put 25.8% of your money away. If you haven't started saving by age 50, you might have have to put half of your money into those retirement accounts.
In general, the recommended savings rates in this study suggest a 45-year-old will have to save twice as much as a typical 25-year-old. A 55-year-old will have to save three times as much as that young upstart. (If you've already started saving and you're curious about the amount the study suggests you save now, you can use the formula described in Table 2.)
To get to these figures, the authors assume you'll retire at age 65. For simplicity's sake they also assume you'll start collecting Social Security benefits at that point, even though many people will not be eligible for their full benefits until age 67.
Older workers with higher incomes shouldn't assume it will be easier for them to make up for lost time. They will see less of their income replaced by Social Security benefits, leaving them with a greater responsibility to supply their income from their own savings.
Savings principles
Even if this kind of math seems a little daunting, the principle is straightforward. The sooner you start saving, the longer your money will be invested. The longer you have to invest, the more your returns can stack up year after year. Put that money in an equity index fund, and you can at least be sure you match the performance of the market while you toil away toward retirement.
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According to Jeremy Siegel's book, The Future for Investors, some everyday stocks can mean uncommon returns over the long run. Siegel singles out companies like Altria
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Fool contributor Mary Dalrymple does not own stock in any company mentioned in this article. She welcomes your feedback. Coca-Cola is a Motley Fool Stock Advisor selection.The Motley Fool has a disclosure policy.
