Here’s What Happens When You Delay Retirement Savings

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Putting off retirement savings makes it a lot harder for you to invest enough for your future. Read on for three consequences of delaying. 

You should be saving for retirement as soon as you start working. Ideally, money will go right from your paycheck into a 401(k) or you’ll set up automatic transfers to a tax-advantaged account with a brokerage firm if you don’t have a plan at work.

But, most people don’t live in an ideal world, and it’s easy to put off saving for the future when you have pressing expenses today. Unfortunately, delaying retirement savings can have some pretty severe consequences for your bank account balance both now and in the future.

Here’s what happens if you make this choice.

1. You will have to save much more money later on

Let’s say your goal is to end up with $1 million by age 65. If you earn a 10% average annual return and start saving at age 30, you would need to make monthly contributions of $307.47. But if you delay and start saving at 45, the required amount you are going to need monthly jumps to $1,454.96.

The longer you wait to save, the more money you have to invest each month. That’s true because you have less time to hit your goal and with fewer deposits to make, each must be larger. It’s also true because you’ll miss out on compound growth, which happens when your returns are reinvested and earn money for you without any extra effort on your part.

A delay can sometimes push your savings goal entirely out of reach, so don’t put off saving if you can avoid it.

2. You’ll miss out on tax breaks you can’t get back

There are multiple tax-advantaged retirement accounts available, including workplace 401(k) accounts and IRA accounts. Each allows you to score a tax break for retirement savings, but there are annual limits on how much you can contribute.

If you don’t contribute anything in 2023, you will lose out on the 2023 tax breaks available to you. And you can’t necessarily just contribute more in 2024 or 2025 because of the contribution limits set for these accounts.

There’s little reason to forgo the help these tax breaks provide in securing your future.

3. You could end up with too little money in retirement

If your retirement nest egg isn’t very large, you may not have enough to live on as a senior. See, you need to withdraw only a small amount of money from retirement savings each year in order to make certain you are leaving enough invested to continue earning returns that help you maintain your balance. Typically, you should only withdraw about 4% (or less) of your account balance.

This means in order for your retirement account to produce around $40,000 in income for you, you would need $1 million invested. That comes as a shock to many people, as $40,000 isn’t a super high retirement income — but you need to be a millionaire to get it.

To make sure you don’t find yourself with too little money, don’t delay saving for retirement. Start taking advantage of tax breaks and compound growth today, so your nest egg is big enough that you can count on it to last throughout your later years and provide a generous income that enables you to cover the necessities — and more.

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