A new report reveals that putting off contributing to a retirement plan, even for a few years, could greatly reduce a worker’s retirement income. The study, conducted by IRI, “found that a worker contributing 10 percent of income annually to a retirement plan beginning at age 35 – rather than age 30 – will receive 11 percent less in annual retirement income. Over the course of a 25-year retirement, the reduced income adds up to $62,000. If saving for retirement is postponed to age 40, income will be reduced by 23 percent, totaling $127,000 over a 25-year retirement.”
IRI President and CEO Cathy Weatherford said, “There’s no lost and found for retirement savings. When saving for retirement is delayed, the benefits of compounding interest are gone and can never be reclaimed. Delaying retirement will only partially recover lost savings and may not even be feasible for some workers. And those who believe they can simply save a higher percentage later on will be in for sticker shock when they realize how much of their income will need to be dedicated to retirement savings to make up for lost time. Few workers can afford to contribute 25 percent, 35 percent, or even more of their annual income to their retirement plans.”
Other key findings from the report:
* A worker who starts to contribute to a retirement plan at age 35 would need to save 16.5 percent of annual income to have the same amount of retirement income at age 65 as a worker who started contributing 10 percent annually at age 30. If the worker delays contributing to the retirement plan until age 40, he or she would need to save more than 26 percent of income annually to achieve the same level of retirement income at age 65.
* Delaying retirement can grow savings through additional annual contributions as well as investment earnings. A worker who begins saving 10 percent of income annually at age 30 can increase his or her retirement income by about 73 percent by delaying retirement and annuitizing at age 70, rather than age 65.
* Delaying retirement can help offset some reductions in retirement income resulting from postponing savings. A worker contributing 10 percent of income annually to a retirement plan beginning at age 35 – rather than age 30 – will receive 7.6 percent less in annual retirement income at age 70, compared to the 11 percent reduction experienced if retirement begins at age 65.
The entire report, “It’s Time to Save for Retirement,” is available HERE.