Procrastinating on Retirement Savings? Here's What It Might Cost You

For many of us, procrastination is a part of life. We delay unpleasant projects at work. We put off our taxes till the very last minute. But if there's one thing you can't afford to procrastinate on, it's saving for retirement. Yet the majority of older workers are guilty of doing just that.

Specifically, a whopping 68% of adults aged 55 and over admit that they procrastinated on setting money aside for retirement, according to a new report by Financial Engines. And their golden years might suffer as a result.

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Why do so many workers put off retirement savings?

Most folks who delay retirement savings know they're missing a key opportunity. In fact, of those surveyed by Financial Engines, the average procrastinator admitted that 25 was the ideal age to start setting money aside for the future -- yet the typical worker in that category didn't start planning for retirement for another 10.6 years after that milestone. And here are some of the main reasons why:

Data source: Financial Engines.

Of course, some procrastinators assume that they'll make up for lost time later in life, but the numbers don't shake out so neatly. That's because those who put off retirement savings not only must compensate for years of missed principal contributions, but also for employer matching dollars and investment growth. In fact, Financial Engines calculates that the typical workers who start setting money aside at 35 would need to save 11.69% of their salary to catch up to a 25-year-old saving 6% of salary.  Workers starting at age 40, meanwhile, would need to save 16.44% of their salary to have the same ending balance at age 65. (These figures assume a salary of $36,000 at age 25 that increases by 1.5% net of inflation per year, a 3% company 401(k) match, and an investment growth rate of 5% net of inflation per year.)

Here's another way to look at it. Imagine your goal is to amass $1 million in time for retirement. If you begin socking away $400 per month at age 25, and your investments generate just over a 7% average annual return (which is more than doable with a stock-heavy portfolio), then by age 65, you'll have that $1 million. But if you wait until age 35 to start saving $400 a month, you'll have more like $467,000 at age 65. To compensate for those missing 10 years of saving, you'll need to boost your contributions to about $850 per month to hit $1 million by age 65, which is a lot harder on your budget than $400.

The point? When it comes to retirement savings, procrastination just doesn't pay.

Stop making excuses

Let's revisit the reasons why people don't start saving sooner. The most common one is stress, which, frankly, doesn't hold water. We all experience stress in life, and financial stress at that. But if you don't pay attention to your nest egg early on, you'll have far more stress later in life. It's really that simple.

Furthermore, while you may very well have different priorities to be focusing on, there's no reason you can't split the difference. Say your paycheck leaves you with $500 each month after paying your essential bills. Maybe you'd like to use that cash to pay for a nice vacation or home improvement, but why not put $250 a month into your 401(k), and use the other half as you please? It's a better move than saving nothing.

Now, if you're worried about being taken advantage of in the course of your saving, here's one way to avoid that: Invest your nest egg in index funds, whose fees tend to be the lowest of the lot. Also, make sure you understand what fees your retirement plan is charging. Asking questions can clear up confusion.

The same advice applies to those who put off saving because they're not sure how to go about it. If your company offers a 401(k), sign up and decide how much of each paycheck to contribute. It's that easy. If you don't have access to a 401(k), open an IRA with your local financial institution and stick to index funds if you don't have anyone who can advise you on specific investments. Index funds give you access to the broad market on top of being cost-effective, so they're a good choice for those who are otherwise clueless.

Finally, if you believe that saving for retirement is too difficult, think about this: Would you rather enjoy two restaurant meals per week in your 20s and 30s, or a roof over your head in your 60s and 70s? Yes, saving for retirement is difficult, but it's also a necessity. And the sooner you accept that, the better positioned you'll be to make the right choices.

No matter how old you are, the time to start saving for retirement is right away. And if you do so early enough, you should manage to accumulate a nest egg that lets you enjoy the comfortable retirement you've always dreamed of.