Procrastination is the act of intentionally delaying something due to an unwillingness to exude effort. Some of our readers may have perfected the art of procrastinating in college, but in the real world it can do more than add stress and lower your grades.
It’s well known that success requires planning, many understand that financial success is no different. It’s rare that someone lucks into wealth and even then, it’s exceedingly difficult for the lucky individual to retain it, let alone grow it; lottery winner bankruptcies are evidence of this phenomenon. It’s rare for someone to have a happy retirement without carefully planning for it. A happy retirement happens by design.
There are two primary reasons why procrastination isn’t compatible with Retirement planning.
Number one: compounding interest –
This is the phenomenon which occurs when the interest invested money accrues then accrues interest and so forth. This is why a retirement account can grow exponentially over time rather than at a steady rate. Procrastination limits your money’s ability to participate in this phenomenon and a futile game of catchup must be played approaching retirement.
Just how powerful is compounding interest? Let’s compare a person who invests $6,000 annually from age 20 to 30 against a person who invests $6,000 from age 31 until they retire at 67. That’s 11 years of contributions and 47 years of compounding interest vs 38 years of contributions and an equal 38 years of compounding growth.
Number two: Expectations of your future–
Ultimately procrastinating will probably cause you to fall short of your expectations. When nearing retirement, we shouldn’t have to stress about whether everything will be ok. We have certain expectations about this empty nester stage. When the lack of child associated expenses/time commitments is paired with a peak career income, an opportunity to really have fun presents itself. This is the perfect time to do the more adventurous activities before age robs us of our energy. Although, the ill prepared will spend this time playing catch up by making increased retirement contributions. What’s especially disappointing, in addition to having low retirement savings, is that this period of our life can’t live up to our expectations if we’ve procrastinated.
It’s not fair to ourselves that we kick the responsibility down the road and burden our future self. Not only is it unfair, but it makes no mathematical sense, given the history of the market. What’s important is not to judge ourselves for our decision not to invest at 20 years old, but rather to make the most of today for our future.
People often prefer not to consider things that cause them discomfort. We strongly believe that the temporary discomfort is well worth it to address something so important as retirement savings. Inspired to discuss your retirement plan with a trusted professional? Click for a Complementary retirement planning consultation with Michael Romanello.