The High Price of Waiting

Procrastination is a silent and slow killer of savings. Everyone puts things off, of course, waiting until the last minute and then scurrying to finish a longstanding to-do list. Taken to extremes, this course pulverizes your long-term financial plans.

Here’s an example. Last year my wife and I debated whether to remove a tree from our back yard. Mainly in the fall this sweet gum tree dropped its fruit, sharp and pointy gumballs that worked wonders on mower blades and bare feet.

Tired of raking and tripping over said fruit, we got an estimate for yanking the tree. The estimate came in high. Balking at the price, we waited.

Now, a year later, we decided to say good riddance to the tree for sure. The most recent estimate for removal was much higher, our penalty for waiting.

This story applies to financial planning – appropriate in many money situations, but perhaps mostly apt when saving for retirement. The golden years, it seems, scare some into inactivity and procrastination.

According to a recent survey from the Employee Benefit Research Institute, for instance, almost half of all U.S. workers are unsure if they save enough for a comfortable retirement. Among other findings:

  • One in five workers believes retirement requires saving 20% to 29% of income, and 23% think retirement savings must equal almost a third of yearly income.
  • Only 46% of workers even calculate retirement savings.

You don’t want to deal today with something you can put off until tomorrow – particularly if what you must deal with frightens or confuses you. But what’s the true price tag of waiting to build your nest egg?

Planners and savers alike probably know what happens if you start saving for retirement at age 21 versus waiting and starting to save at a later age. Let’s look at an example. (To be fair, this example uses an average rate of return over a number of years; the market is never consistently average but this illustration does help explain the cost of waiting.)

Jane, 21, opens an individual retirement account and starts contributing $2,000 annually. Jane consistently does this for the next 40 years and makes a modest 4% rate of return over her working life until she turns 61. After 40 years, she has a nice $190,051.

John, also 21, waits to start saving until he thinks he can afford it. John finally realizes he needs to start saving at 41 and, thinking himself smarter than most retirement savers, decides to play catch-up and doubles his savings payment over Jane’s.

He saves $4,000 per year for the next 20 years. Again assuming a 4% return over 20 years, John’s IRA reaches a respectable $119,112 – still roughly $70,000 less than Jane. If only John knew that starting early meant he saved less annually and enjoyed more savings at retirement.

Trees and IRAs aside, many aspects of life show you the high costs of waiting. No need to rush headlong – but procrastination hurts you when you need to act. What are you waiting for?

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Sterling Raskie, MSFS, MBA, CFP, is an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill. He is an adjunct professor teaching courses in math, finance, insurance and investments. His blog is Getting Your Financial Ducks in a Row, where he writes regularly about investments, retirement savings and financial planning.

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