This Is the Most Ridiculous Reason to Not Save for Retirement This Year

Saving for retirement is something you should aim to do every year. But sometimes, it's okay to put off contributions to your IRA or 401(k). Your primary financial goal should be to build an emergency fund that's large enough to cover at least three months of essential expenses. Most Americans aren't close.

Data from SecureSave found that as of about a year ago, a good 63% of U.S. adults couldn't cover so much as a $500 unplanned expense. So it's a good idea to hold off on retirement savings if your near-term savings need work.

Similarly, if you owe a lot on your credit cards, you may want to chip away at that debt before funding a retirement account. If your credit cards have high interest rates, you could end up losing hundreds or thousands of dollars to interest over time.

But while wanting to prioritize your emergency fund and pay off high-interest debt are two good reasons not to save for retirement this year, there's one common excuse for delaying retirement savings that really doesn't hold water. So if you've been using it as a reason to neglect your IRA or 401(k), you may want to change your line of thinking.

"But it's so far away"

That's the reasoning a lot of people adopt when they're looking for an excuse not to save for retirement. And look, it's understandable to some degree. If you're 25, it's hard to imagine being 65 and needing money to pay for essentials like housing, food, and medication while not holding down a job. So it's easy to see why the fact that retirement is so far away might zap your motivation to save for it.

But here's the thing: The sooner you start saving for retirement, the more money you're likely to end up with. That's because you can invest your savings and grow that money into a larger sum over time.

Over the past 50 years, the stock market's average annual return has been 10%. Let's say you're 25 and you want to retire at 65. If you start socking away $150 a month and your investment portfolio gives you a 10% return over the next 40 years, you stand to retire with about $797,000. If you wait just one year to start saving that $150 a month for retirement, the balance you're looking at is roughly $723,000.

Now to be fair, $723,000 is a lot of money. And it's actually about $114,000 more than what the average American aged 65 to 74 has saved for retirement, according to data from the Federal Reserve.

But the difference between $797,000 and $723,000 is $74,000. That's a huge amount of money. To put it another way, saving for retirement one year earlier could, in this example, cost you $1,800 but leave you $74,000 richer. So all told, you're ahead by $72,200.

Don't delay retirement savings if you can afford it now

If your finances have taken a beating this year, or if you're still in the process of saving money for emergencies, then by all means, wait to save for retirement. Wait one year, two years, or however long it takes to make sure your near-term financial needs are covered. Those should always come first.

But if you have the money in your budget to save for retirement this year, do it -- even if it's just a little bit. You may not think it's important to start saving so far in advance. But if you make that effort, it might pay off in a tremendous way.