Can You Put Off Funding Your IRA if You Plan to Retire Late?

You'll often hear that it's important to fund your IRA consistently over time. And the more time you give your money to grow, the more wealth you stand to bring with you into retirement.

The average American retires at age 61. But what if you're planning to work longer than the typical American? What if you love your job and intend to plug away at it well into your 70s? If that's the case, you might assume that you can wait longer to start saving and investing for retirement. But that's a decision that might sorely backfire on you.

Don't give up years of investment gains

The problem with waiting longer to start saving for retirement is that for each year you delay funding your IRA, you give up the chance to enjoy investment gains.

Let's say you're able to sock away $300 a month for retirement savings. Over the past 50 years, the stock market, as measured by the S&P 500's performance, has generated an average annual return of 10%. That accounts for both good years and bad. If you invest your savings heavily in S&P 500 stocks or index funds, there's a good chance you'll enjoy a comparable return yourself.

So, let's say you begin saving that $300 a month for retirement at age 41 with the goal of retiring at 71 -- 10 years later than the typical retiree. In that case, if we apply a 10% return, you're looking at a nest egg worth about $592,000. That's certainly a nice amount of money. And it's more than the typical 70-something has in retirement today. That figure is $113,900, according to Northwestern Mutual.

However, watch what happens when you start saving $300 a month 10 years sooner. Increasing your savings and investing window from 30 years to 40 years boosts your nest egg's value to almost $1.6 million. That's roughly $1 million more than what you'd be looking at by waiting until age 41 to start saving rather than doing so at 31.

Don't assume you'll be able to retire late

Another issue with putting off IRA contributions due to an anticipated late retirement? You may not end up getting to work as long as you'd like to. It's not uncommon to be forced out of a job due to health issues as you age. And if your company folds when you're in your early 60s, you might struggle to get hired elsewhere.

Even though it's illegal to discriminate against job applicants on the basis of age, it's also hard to prove that a given employer is doing that. But as you might imagine, companies aren't always so open to hiring people who are likely to be on the verge of retirement.

So all told, waiting to fund your IRA could put you in a seriously bad spot if your plans don't work out as expected. That's why your best bet is to start contributing money to that account as soon as you're able to.

Remember, you can always start off with modest contributions and increase the amount of money you put in over time. But that way, you can benefit from investment growth early on while protecting yourself in the event that you're forced to retire earlier than planned.