Procrastinating on Retirement Saving Leads to Trouble

This is a fun TED talk on a topic all of us can relate to: procrastination.

It is relevant to a central theme of this blog: retirement. Research shows that procrastination plays at least a small role in why so many U.S. workers haven’t saved enough to retire in the lifestyle they’re accustomed to. The urgency of saving early has never been truer than it is for Millennials and Gen-Z. More on that later.

First, let Tim Urban explain his theory about procrastination. He is a master procrastinator, demonstrated by his handling of his senior college thesis, a year-long project jammed into three days that included two all-nighters.

He argues that when a deadline is fast approaching, procrastinators panic and get the job done. He just made his thesis deadline. “In the end, it works,” he says in the TED talk.  

Retirement also has a deadline. It’s a somewhat fungible deadline. Some people retire as soon as they can get Social Security (at age 62) or Medicare (at 65). A few hang on until 70 or even later. But at some point, retirement will come.

Saving for that day, however, is not a project that can wait until the last minute. The Center for Retirement Research, which supports this blog, has estimated how much workers need to save, depending on the age they get started.

A 25-year-old who puts money in a retirement savings plan now and wants to retire at 65 would have to save 10 percent of his paycheck through a combination of his own and his employer’s contributions – if the employer has a 401(k). Delay, and that increases to 15 percent at age 35, and to 27 percent at age 45!

These are 2014 estimates and dated because the stock market returns on the 401(k) investments, interest rates and other factors that go into calculating them have changed. But you get the idea. Saving at the last minute doesn’t work when it comes to the deadline for having enough money to retire comfortably.

Pensions are disappearing and Social Security benefits are shrinking as the program’s age for receiving the full retirement benefit increases. That’s the reality of the 401(k) world young adults are living in.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  This blog is supported by the Center for Retirement Research at Boston College.