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Waiting to Save for Retirement? Here's How Much It'll Cost You

By Christy Bieber – Aug 18, 2020 at 9:31AM

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Hint: You can't afford it!

When you're faced with many pressing financial obligations, especially during the coronavirus crisis and 2020 recession, saving for retirement may seem like something you can worry about later.

Unfortunately, if you procrastinate on investing for your future, you'll only make it a lot harder later to save as much as you need. Missing out on even a few years of financial gains that come from having your money invested means you'll need to increase contributions to your retirement accounts substantially in the future since you won't be taking advantage of the magic of compound interest for as long. 

So exactly how much will it cost you if you wait to start saving for your future?

Binder labeled retirement savings plan with calculator and pen sitting on it.

Image source: Getty Images.

Here's the price for procrastination

The best way to understand the price tag for delaying your retirement saving is to consider the amount you'd need to invest to end up in the same place when starting at different ages. In other words, if you want to have an $850,000 retirement nest egg, how large would your annual contributions need to be to hit that target by age 66? 

If you assume a 7% average annual return, here are the contributions you'd need to make every year to hit your goal.  

  • If you start at 20, you'd need $2,775.
  • If you start at 25, you'd need $3,965.
  • If you start at 30, you'd need $5,715.
  • If you start at 35, you'd need $8,325.
  • If you start at 40, you'd need $12,375.

If you had begun saving your $2,775 at 20 and contributed that amount to your 401(k) or IRA every year, you'd have made $55,500 in contributions by the time you reached the age of 40. But your retirement nest egg would already be worth $113,762, so you'd have more than $58,000 in gains that are hard at work for you. All of this money you earned from your investments would continue to grow for you for the rest of your life, so you could stick with these low contributions and end up in the same place you would by contributing more than four times the amount starting at age 40. 

You can also compare the amount you'd contribute out of pocket over your lifetime to see how much of an impact waiting makes. If you contribute $2,775 every year from age 20 to age 66, you'd have invested $127,650 of your money to end up with your $850,000 nest egg. But if you start at 40 and contribute $12,375 per year, you'd have to put in $321,750 to end up with the same amount. That's $194,100 more out of your pocket. 

Of course, in reality, most people can't afford to invest more than $12,000 a year for retirement. So what you'd end up costing yourself is your ability to achieve your goal at all. The price tag of delay, in this case, would be the financial insecurity that you'd likely experience as a retiree.  

Don't make life harder for your future self

If you're unemployed due to the coronavirus and struggling in the 2020 recession, you may not be able to start saving for retirement. And that's OK, as this is an unprecedented situation, and simply making it through these tough times is an accomplishment.

But if you're still working or have extra money available from unemployment, you owe it to yourself to invest it for the future. You don't want to get stuck having to save an impossible amount later in life to end up where you'd be by investing just a little earlier on, so begin making contributions to your retirement accounts ASAP. You'll be happy you made the effort when you see how effectively your money works to grow your wealth.

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