Saving for Retirement: The Procrastination Penalty


Even if you can only put a little money away at this stage in your life, it will be worth it in the long term.

The last thing recent graduates want to think about is saving for retirement. Right now, my student loan debt is weighing on my mind. Plus, I just started my career, so the finish line is so far in the future that I can’t even see it.

And yet, retirement is still something I fret over. I realize that by the time my golden years arrive I won’t be able to rely on Social Security benefits the way my grandparents do now and my parents are expecting to in just a few years. Before I hit retirement age (which is ever increasing) the Social Security fund will have run dry.

The good thing is that those of us just starting our careers have time on our side. The bad thing is we know we have time, so it would be all too easy to procrastinate.

According to financial advisor Thomas Kosky, waiting even 5 years to start saving could mean the difference of up to a couple hundred thousand dollars in retirement. If your company offers some sort of retirement program—like a 401(k) or a 403(b)—then you should put money into it no matter how little you think you can afford. If your employer matches part of your contributions, you could be missing out on free money by not participating.

Part of the beauty of these programs is that the money is all tax deferred. Not only is the money not taxed when you deposit it, but you don’t pay any tax on earnings as the money grows in your retirement account. It’s only when you begin withdrawing funds at age 59-and-a-half or later that the money will be taxed at your income-tax rate, which is presumably lower than when you were working. (If you withdraw funds before 59-and-a-half, however, you will be subject to a penalty of 10% additional tax.)

Let’s say that you saved $17,000 (the maximum) for the year in your 401(k). If you’re in the 30% income tax bracket, you would have paid $5,100 in taxes on that money, which would have left you with only $11,900. Since the account is tax deferred, you get to keep the entire $17,000. So you’re really only spending $11,900 to save $17,000.

Even if you can only put a little away at this stage of your life, it will be worth it in the long run when you have enough money saved to retire before you turn 80.

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