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A Foolish Take: How Procrastination Can Cost You $83,000

By Dan Caplinger - Aug 19, 2019 at 12:02PM

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There's an easy way to make your retirement savings work harder, and it's more rewarding than you might think.

Saving for retirement is one of the most important things you can do to ensure your long-term financial security. Yet it's all too easy to procrastinate on retirement saving. Many young adults don't even think about starting to use tax-favored retirement accounts like IRAs or 401(k) plans until well into their careers, and by then, they've already missed out on what could have been some of their most productive saving years.

Even the rules governing IRAs understand that people tend to procrastinate on their saving for retirement. You're generally allowed to make an IRA contribution for a given tax year any time on or before April 15 of the following year. That allows people looking for a quick tax break as they prepare their final returns to use deductible IRA contributions to reduce their taxable incomes.

However, what many people don't realize is just how costly it can be to procrastinate with their IRA contributions. To take a simple example, compare what two different people do with their retirement savings. One person always waits until the last possible moment to make their IRA contributions, getting their money in during April of the following year. Another person is quicker with their savings strategy, making their contributions 12 months earlier in April of each tax year.

After 35 years, here's what each person's balance looks like, assuming 8% average annual returns over the period:

Chart showing savings after 35 years in two scenarios

Data source: Author's calculations. Chart by author.

As you can see, the person who made contributions earlier ended up with almost $83,000 more after 35 years than the procrastinator who waited until the last minute to put money in their IRA. That's because the early contributor always had more money invested than the procrastinator, earning the positive returns that the stock market has yielded over the long run.

It can be challenging to find money to save for retirement, but the payoff for getting started as early as possible is huge. The sooner you start saving, the harder your money will work for you throughout your career.

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