I just ran across an article by Mindy Fetterman in USA Today that talks about the effects of procrastination when saving for retirement. She starts out by presenting the same sorts of numbers that we’ve all seen a million times before:
“If you’re 20 years old and you save $100 a month in an investment that earns an average 7% a year until you retire at 65, you’ll end up with $381,472. If you wait until age 40 to start saving $100 a month, you’ll have only $82,056.
If you wait until 50… Well, you get the point.”
So… If you’ve waited until the last minute, what can you do?
This is all pretty much common sense, but here are some steps to consider if you’ve procrastinated:
Save something. Instead of throwing up your hands and saying that it’s too late, save something. Anything is better than nothing, so don’t be paralyzed by fear. Do whatever you can, and start today. Take advantage of any tax-advantaged savings options that you might have at your disposal, and be sure to save at least enough to capture any matching funds offered by your employer — you’re going to need all the help you can get.
Save more. The only way to truly catch up if you start late is (obviously) to save more per month. Way more. The good news is that people 50 and older are eligible to put an additional $5,000/year into their 401(k), so it is possible to make up ground.
Spend less. In order to free up money for additional savings, you’ll need to spend a lot less. Start by plugging the little holes in your pocket, like a daily coffee, lunch out, etc. In all likelihood, that won’t be enough, so you’ll need to reign in your spending on bigger things, as well. The same goes for life after retirement. If you’re getting a late start, you’ll probably have to look at way to dramatically reduce your cost of living in retirement.
Work longer. Instead of retiring when you first qualify for social security benefits at age 62, you’ll likely need to continue working to age 65 or beyond. Working longer has multiple benefits, in that push back your retirement results in higher social security benefits, gives you more time to earn and save money, and reduces the number of years during which you’ll be dependent your retirement savings.
Of course, if you’re still young and you want to avoid all of this, then you should start saving as much as you can as early as you can.