No Decision Is a Decision

“Well, I will look at this, talk to my spouse about it, and see what we can do.”; “I have a long time before I retire. I will do it later.”; “I know I need to.”; I have been talking to people about starting retirement savings since 2006 when I started working at the Board of Retirement. Those three responses are by far the most common that I receive when trying to explain the importance of beginning a plan. Most people know it is essential to have a retirement account and actually to put money into it. The hold-up with many people is deciding to start. We can use any excuse we would like, but the truth is that no decision is a decision, and it is almost always wrong.

In the US, the Boomer generation is the first generation to have moved away from retirement through pensions through their employers. Until the 1980s, most American workers relied on a Defined Benefit plan provided by their employer. Basically, you work for a company for 30 years, and at retirement, that company would continue to pay you based on years of service and your ending salary. But in the 1980s, 401(k) accounts became the dominant retirement source for American workers. The difference is that 401(k) and 403(b) are defined contribution accounts, which means that the employee is responsible for providing for the account. While your employer can still contribute to your account, the decision-making for how the account is invested and the contribution rate is up to the worker. Because of this shift now, many decisions need to be made by the individual worker, which leads to no decisions being made.

The defined contribution account needs time and consistency to grow to the level a person would need in retirement. So deciding to start your retirement is critical. Time is your friend or enemy, depending on when you begin saving. If you are in your 20s, then time is your friend. You can start saving a small amount consistently, be invested in the markets, and watch the power of compounding interest do a lot of the heavy lifting. But on the flip side, if you are in your 50s, then time is not a good friend. Time will still help do some of the liftings, but you will have to do a lot more work through higher contributions and catch-up contributions to get you to the levels you need in retirement. The closer you get to retirement age, the more work you have to do, and time is almost working against you.

Now that most employers put the responsibility of retirement savings on to the employee, it is in your best interest to start as soon as possible, save as much as possible, and be as consistent as possible. Define Contribution accounts can benefit individuals more significantly than a traditional pension since you are gaining the time value of your investments. Still, to achieve that benefit, you have to decide on starting to save.