Planning & Advice

The Cost of Waiting. The Impact of Delayed Retirement Savings

November 22, 2014


The Cost of Waiting. The Impact of Delayed Retirement Savings

Planning & Advice

Humans are hardwired to prefer immediate gratification. Sure, our financial advisers emphasize long-term investing. But we want to buy stuff now. Investment can come later, right? It turns out that there is a cost to delayed retirement savings.

For example, when you spend $1000 towards a new TV, you get the immediate satisfaction of being able to go home and watch it. Yet, when you put the same amount towards your retirement savings, the perceived reward seems somewhere in the distant future. In the case of life insurance, you won’t be experiencing the benefits at all – ever. By the time life insurance delivers on its value, you will be 6 feet under!

We’ve certainly heard enough stories of people in retirement who regret not saving enough, and wishing they’d saved sooner. And yet, somehow, when it comes to making the decision to squirrel money away rather than splurging on things we likely don’t need, our first instinct is to bury our heads in the sand.

I recently read an interesting article, which sheds some light on this very issue. The article states “We think of our future selves like we think of others: in the third person. The disconnect between our present and time-shifted selves has real implications for how we make decisions. We might choose to procrastinate, and let some other version of ourself deal with problems or chores…we can focus on that version of ourself that derives pleasure, and ignore the one that pays the price.”

This got me thinking: what can I do to show people the impact of waiting too long to save for retirement? With my knack for numbers, I thought I would start by calculating just how much more you’d have to save to maintain the income in retirement, each year you delay starting.

As Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it …he who doesn’t … pays it.”

As you’ll see from the data below, he couldn’t be more accurate.

I’ve taken incomes from $55,000 – $200,000, from age 25 to 60 and calculated how much money you would have to save in order to maintain the same standard of living in retirement that you have been enjoying all these years up to age 65.

Assumptions are:

  • You will receive 100% of CPP benefits.
  • You will not receive Old Age Security at all.
  • Hypothetical annualized rate of return is 6.5% (investing does involve some risk)
  • Inflation is 2%
  • Assuming renting a home or at least having a housing cost in retirement.

There are two major findings that I would love to share.

Fact #1: The longer you wait, the bigger the increase in your needed monthly savings. 

Each year you delay starting to save, the increase in the amount of money you need to save is two-fold.

It increases because you have 1 year less to save for retirement.
It increases because you have now lost 1 year worth of returns.


The needed increase in monthly savings is exponential. For example, if at age 25, you need to save $533/mo in order to maintain an income of $55,000 per year, you will need to save $562/mo if you start at age 26, which is a 5.49% increase. If you wait until age 27, you will need to save $593/mo, which is a 5.54% increase. This percentage increase goes up year over year, reaching nearly 23% at age 60.

So, each year you wait, the impact on your current standard of living will be bigger than if you start right now.

Fact #2: If you are 50 or over and have not started saving for retirement, you will have to take a pay cut.


Starting saving after 50 means it is mathematically impossible to catch up. You would have to save most of what you make. So, if you are finding it hard to reduce your spending to start saving for retirement, the longer you wait, the higher the reduction in spending will be in retirement.

The sooner you start, the easier the adjustment to spend less money will be. Don’t wait until the next big raise to start saving. Building good saving habits that ensure you will maintain the current standard of living are always appropriate. If you get the raise, you can adjust the plan, spend more and save more.

Long-term saving might not offer the same instant gratification of a new and shiny gadget, but the consequences for delaying can mean the difference between enjoying and struggling through your retirement.

A few minutes today could save you thousands tomorrow.
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