“Procrastination is like a credit card: It’s a lot of fun until you get the bill.”
Christopher Parker, actor
As human beings, we love to procrastinate; May it be that healthy diet plan, gym sessions, or even getting our finances in order. Being in the retirement savings industry, I meet several people who have excellent intentions to save for the future, but not just today.
One of my last interactions with a college friend prompted me to cover the impact of procrastination on our financial lives. For a better understanding, we will consider two different approaches to retirement savings.
Steve and Bob, 25, work for a technology company and earn an annual income of $80,000 each.
Script me: Steve decides to contribute $5,000 a year to his retirement fund and did so for the next 10 years, until age 35. To qualify for eligible distributions, he left the money invested until retirement.
At 6% average annual interest, Steve accumulated approximately $68,000 at the end of 10 years. Over the next 25 years, this money grew 6% per year without further contributions to $291,847.
Scenario II: Bob began contributing $5,000 a year to his retirement fund starting at age 35 for the next 10 years and kept the money invested until retirement age.
Using the same investment terms, Bob also accumulated $68,000 by age 45. Over the next 15 years, this money grew 6% annually, resulting in net retirement savings of $162,965.
Bob lost almost $129,000 due to procrastination!
After reading these two examples, you may understand how Bob missed the magic of compound interest, but believe it or not, Bob is the reality of our society. When it comes to financial planning, phrases like ‘I’m too busy’, ‘I’m too late’, ‘It’s too early’ or ‘I don’t know how’ are quite common.
How to use procrastination to build your retirement savings
Our team decided to take a different approach to retirement savings. Let’s see how procrastination can help you, of course, with a little extra action.
Enroll in your company’s 401k plan
A little action toward retirement planning can bring tremendous results over a long period of time. Start by signing up for your company’s 401k plan. Many companies have employees sign them during onboarding, but if yours didn’t, be sure to ask. Most companies offer a matching contribution of up to 3% of the employee’s annual earnings, although your employer’s matching formulas may vary.
Thanks to procrastination, you may not pay enough attention to these contributions or even stop them in the future; thus, building up a sizable retirement fund. When you change jobs, all it takes is a couple of applications to transfer the plan to your new employer, and the same cycle continues.
Open a checking account with automatic debit
It’s smart to have a checking account with automatic debit. We suggest having two checking accounts for it to work. Open a new checking account with an automatic debit feature and ask your employer to deposit your salary into this account.
Find out your recurring expenses, along with room to splurge, and how much you can afford to save. The next time your salary is credited to the account, the auto-withdraw feature will automatically send this set amount to your secondary checking account, helping you save more.
Everyone understands that procrastination rarely does the life of the average Joe any good, so if it’s going to exist anyway, why not use it to your advantage?