Retirement planning procrastination wastes the advantage of compound interest


Many people procrastinate when it comes to saving for retirement … but the earlier you start, the more compounding interest works in your favor.

Financial Engines conducted a survey to better to better understand why people procrastinate on their retirement savings. They learned that most of those those surveyed identified 25 as the right age to begin planning and saving for retirement, but that most had started much later than that: an average of 10.6 years later than they thought they should have.

They attributed that delay in retirement savings to various reasons:

  • 50% – stress
  • 40% – other, higher priorities
  • 24% – worried about being
  • 23% – unsure how to go about it
  • 20% – believed it was too difficult

While people think they can make up for it later — and sometimes they can — every year of delay squanders the advantage of compound interest. To reach the same savings goal, they would need to save more each year to make up for any missed investment growth, as well as any missed employer matches, if available.

The following graphic depicts the percent of income that would need to be saved each year to reach the savings goal.

delayYou can learn more about the benefits of time by playing with with this compound interest calculator.

But the better-late-than-never rule comes into play – even if you missed out on the advantage of an early start, the sooner you do begin the better, so don’t delay. Here are some tips offered by  Financial Engines for late starters:

late-startFor more information on the cost of procrastination, see their complete infographic.

Deferring Social Security can yield higher monthly benefits


Waiting to take Social Security benefits after your full retirement age will increase your monthly benefits as much as 76 percent, according to the nonpartisan National Academy of Social Insurance (NASI). This short video explains why.

Here’s an example of how claiming benefits earlier or later would affect  someone who would be earning $1000 at the normal retirement age.

social security exampleNASI says offers this advice:

  • If you need Social Security to make ends meet, take it. You’ve earned it.
  • If you can wait, even a year or two, your monthly benefit will be higher – for the rest of your life.
  • If you are married, you have two lives to plan for. If you are the higher earner, waiting to take Social Security means a higher survivor benefit for your spouse if she or he outlives you.

You can visit Social Security to get an estimate of your retirement benefits. Once on Social Security, can you expect benefits to go up? Most years, there is a small increase called a cost of living adjustments (COLA). To see how much Social Security benefits have increased over the years, see this chart on COLA increases from 1975-2013.