Retirement Planning: When Procrastination Is a Great Idea

Not all delays are bad. Photo: Flickr user Michael Duxbury.

"Imagination only comes when you privilege the subconscious, when you make delay and procrastination work for you."
--Hilary Mantel

Procrastination gets a bad rap, often cited as a reason we underachieve. But there's an upside to procrastination. Procrastination can serve all of us in one way or another. For example, it can make your retirement much more comfortable.

How's that? Well, if you put off retiring for a few years, you can accumulate much more money in your retirement savings while delaying your eventual withdrawals from those savings. Many, if not most, Americans don't have a sufficient amount saved for retirement and aren't on track to have a sufficient amount, either. For them, delaying retirement can vastly improve their future quality of life.

Photo: Flickr user Alan Myers.

Don't order the retirement party cake yet
Here are some statistics that shed light on the state of retirement savings in the U.S.:

• According to the 2014 Retirement Confidence Survey, about a third of workers have not saved anything for retirement. Some might still be young, but that's the best time to start, as their savings will have a long time to grow through compound interest. Many in this category are not young, too.
• According to the same survey, a whopping 60% of workers have saved less than $25,000, and fully 36% have saved less than $1,000.
• According to the Towers Watson's 2013/2014 Global Benefit Attitudes Survey, as of 2013, 43% of respondents have, over the past three years, decided to work longer -- up from 34% in 2009.
• Among those who expect to work longer, 71% see a delay of at least three years, and 44% expect to retire five or more years later. About a quarter expect to retire at age 70 or later.

Clearly, many Americans are realizing that they're way behind in their retirement savings and that they will have to work longer. While some of these folks have squandered opportunities to save for many years, plenty of them have simply been living and working in a period that has recently featured high unemployment and, for many, stagnant or falling wages.

The power of time
Fortunately, if you have a job, can save money, and can delay retiring for a few years, you can make a big difference in your nest egg. Let's check out some examples. Imagine that you have accumulated $100,000 by age 40. If it's invested and grows by the stock market's long-term annual average of 10%, here's what it will grow to over different spans of years:

Remember that the 10% growth rate is a very long-term average, and over your particular investing time frame, you will probably average a higher or lower growth rate. And if the stock market takes a dive a bit before you retire, that will mess up your results, too. That's why it's good to move a chunk of your savings into more stable investments as retirement approaches. Remember, though, that a potentially big portion of your nest egg isn't likely to be tapped in your first 10 or so years of retirement. Therefore you may want to have that larger portion parked in stocks, where it's likely to grow most quickly -- for most investors, a simple and inexpensive broad-market index fund will do.

In the preceding table, note how powerful waiting just two or three years to retire can be. Of course, your savings may be much higher or lower than $100,000, but it's an easy number to adjust. If you've saved $50,000, for example, cut the results in half. And if you're 46 now, you can change the numbers accordingly. There are a number of online compound interest calculators to help you get an idea of where you stand.

Other benefits of procrastination
Clearly, you can reap a big financial gain by delaying retirement. And there are other benefits, too. For one thing, you can also delay your Social Security benefits, and for each year you delay beyond your expected retirement age, up until age 70, your benefit will grow by about 8%. Delay from age 67 to 70, and your eventual benefit will grow by about 24%!

Meanwhile, if you remain employed, you'll probably keep your work benefits, such as subsidized health care.

What to do now
So give some thought to whether you might want to delay your retirement, too, and remember that many of us won't be able to choose when we retire. We may have it forced upon us, via a job loss, a serious illness, the need to care for a family member, or some other reason. Thus it's worth it to aggressively save and investing now for retirement. If you do a good job of that, you might end up being able to retire on time or even early -- and at the very least, you'll be less likely to find yourself suddenly retired with insufficient income.