Clearly your 401(k) would be more attractive if your employer sweetened the deal by kicking in some cash on top of what you throw in.
But match or no, you still want to begin participating ASAP. Otherwise, you may end up paying what I refer to as The Price of Procrastination.
What is that, you may ask?
Basically it’s the potential amount of retirement savings you miss out on by failing to get an early start building your nest egg. And if you think delaying can’t carry a hefty cost, consider this example.
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Let’s say that you earn $50,000 and that your salary will climb at an annual rate of 2.5% during your career. And let’s further assume that you take my advice and begin contributing, say, 10% of your salary to your 401(k) starting now, and that you continue on that course until you retire at age 65.
Assuming a reasonable 7% annual return, you would end up with a 401(k) balance come retirement time of just under $680,000. Not enough to fund a lavish retirement — remember, this is $680,000 in 2041 dollars — but still a tidy little sum.
But look what happens if you get a later start. If you wait just six years until you’re 40 to join your 401(k) and then follow the regimen described above, you would end up with about $475,000 at age 65, or 30% less than had you started at 34. That makes the Price of Procrastination $205,000.
Hold off participating until you’re 45, and you would end up with roughly $335,000, which is less than half what you would have by starting now. The Price of Procrastination in this case: $345,000.
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