The Cost of Waiting

Procrastination is a silent and slow killer. Everyone, including yours truly, is guilty of putting things off, waiting until the last minute and then scurrying around frantically to get done what we could have easily gotten finished weeks or months ago if we would have either planned ahead or simply started.

Let me give you an example. Last year my wife and I were debating whether or not to have a tree removed from our back yard. The culprit is the much loathed sweet gum tree that is common in this area of the country. Readers familiar with this pariah of the deciduous family of trees recognize it with annoying “gumballs” that are far from being smooth but rather are the sharp and pointy fruits that fall relentlessly from the tree mainly in the fall and work wonders on mower blades and bare feet. Needless to say they are a pain – good only for the occasional “Darn it!” (My kids are within earshot).

Tired of raking and tripping over them we got an estimate to have the tree removed. Balking at the price, we waited. A year later we decided to have it removed for sure. This year’s estimate was much higher than last. Crud. If only we hadn’t waited…

Naturally this story can be related to financial planning – appropriate in many situations but perhaps mostly apt when it comes to saving for retirement. What is the true cost of waiting? Planners and savers alike have probably seen scenarios or illustrations that depict what happens if someone starts saving for retirement at say age 21 versus someone who waits and doesn’t start until a later age.

Let’s look at an example. To be fair, this example will use an average rate of return over a number of years. As we know the market is hardly consistently average but it helps explain the cost of waiting.

Jane, age 21 and a college senior wakes between naps in class and actually listens to her personal finance professor and opens an IRA and starts contributing $2,000 annually (a slight ribbing to my student readers – of which there may be zero!). Jane consistently saves $2,000 annually for the next 40 years and makes a modest 4% rate of return over her working life until age 61. After 40 years she’s acquired a nice sum of $190,051.

John, also the same age decides to wait and says he’ll start saving when he “can afford to”. John finally realizes he needs to start saving at age 41. Thinking he’s smarter than most he decides to play catch-up and “doubles down” on 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 but roughly $70,000 less than Jane. If only John knew that he could save less annually by starting early and have more in the end.

His cost of waiting: $70,000.

Trees and IRAs aside, the cost of waiting can be seen in many aspects of our lives. I am not saying that we need to rush to judgment, but I am saying that procrastination is bad when we know we need to act and feel guilty if we don’t. So what are you waiting for?