“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 ordering our finances. Being in the retirement savings industry, I come across a number of people who have excellent intentions to save for the future, but not just for today.
One of the last interactions with a friend from college motivated 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 at a technology company and earn an annual income of $ 80,000 each.
Script ISteve decides to contribute $ 5,000 annually to his retirement fund and did so for the next 10 years, up to age 35. To qualify for eligible distributions, you put the money invested until retirement.
With an average annual interest of 6%, Steve accumulated approximately $ 68,000 at the end of 10 years. Over the next 25 years, this money grew 6% annually without further contributions to $ 291,847.
Scenario II: Bob began contributing $ 5,000 annually to his retirement fund starting at age 35 for the next 10 years, leaving the money invested until retirement age.
With the same investment terms, Bob also accumulated $ 68,000 at the age of 45. Over the next 15 years, this money grew 6% annually, resulting in net retirement savings of $ 162,965.
Bob lost almost $ 129,000 to procrastination!
After reading these two examples, you may understand how Bob lost 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 increase your retirement savings
Our team decided to take a different approach to retirement savings. Let’s see how procrastination can really help you, of course, with a little complementary action.
Enroll in your company’s 401k plan
A little action toward retirement planning can yield great results over a long period of time. Get started 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 request it. Most companies offer a matching contribution of up to 3% of the employee’s annual income, 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; therefore, you build up a sizeable retirement fund. When you change jobs, all it takes is a couple of requests 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 an automatic debit checking account. We suggest having two checking accounts to make it work. Open a new checking account with an automatic debit feature and ask your employer to deposit your wages into this account.
Find out your recurring expenses, along with a margin to splurge and how much you can afford to save. The next time your wages are credited to the account, the automatic debit feature will automatically send this set amount to your secondary checking account, helping you save more.
Everyone understands that procrastination is rarely good for the life of the average citizen, so if it’s going to exist anyway, why not use it to your advantage?