The price of procrastination: $455,000

(Money Magazine) -- Question: I'm 34 and have yet to begin saving for retirement. I'm considering participating in my company's 401(k) plan, but I'm unsure whether to do so since my employer doesn't match my contribution. What do you advise? --Nikia, New York, New York

Answer: I recommend that you sign up for your 401(k) and start contributing as much as you can, pronto.

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Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005)

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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.

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.

And if you really dawdle and don't get around to joining your 401(k) until you hit 50, you would accumulate just under $225,000, a haircut of about two-thirds of what you might have by starting today. Your "POP": about $455,000, or nearly half a million bucks.

Of course, all these figures are hypothetical. You may not be able to contribute 10% every year. And you're certainly not going to earn 7%, or any other return, year in and year out without fail. So in the real world, your account balances will differ from what I've outlined here.

But the basic point remains valid: By delaying, you don't have those early contributions working for you all those years. And the more you delay, the more stunted your nest egg is likely to be.

Now, I'm sure some people are saying, okay, I may get a late start, but I'll make up for it by contributing more later on or by earning a higher rate of return on my 401(k) investments.

But that's a lot easier said than done.

For example, by delaying to age 45, you would need to contribute about 20% of salary each year to wind up with the same nest egg at 65 that you would have had by starting at 34, assuming the same 7% return. Wait until you're 50, and you've got to sock away about 30% of salary to compensate for the late start.

And if you think higher investment returns are going to dig you out of the hole, think again. Assuming you don't get going until you're 45 and then contribute 10% annually, you would have to earn more than 13% a year to hit age 65 with the same $680,000 nest egg you would have had by beginning at 34.

And if you postpone saving until age 50, you would have to earn in excess of 20% a year to end up with the same balance. You would need to have incredible luck or the skills of Warren Buffett to have even a prayer of racking up such returns over so long a time.

Having said all this, it's also important to keep in mind that, all else equal, your 401(k) balance would grow even more if your employer threw in a match. If your employer contributed just 2% of salary on top of your 10%, for example, you would have upwards of $825,000 instead of $680,000 at 65 if you join your plan now. A more generous match of 5% of salary would fatten your nest egg to just over $1 million.

Given that potential extra payoff, I think it's worthwhile for you and a few of your fellow workers at least to suggest to your HR department that your company begin offering a match of some sort, as two-thirds of plans do, according to Hewitt Associates.

Given the still slack labor market, I wouldn't be surprised if your company didn't fall all over itself to accommodate this request. Indeed, throughout the recession many companies trimmed or eliminated their 401(k) matches, although a growing percentage of firms that did so are now reversing those cuts, according to Towers Wyatt.

After you've signed on to your plan and are stashing away a reasonable percentage of your salary, you then might want to begin looking for tax-advantaged ways to save outside your 401(k). A traditional deductible IRA, which gives you the benefit of a tax deduction, and a Roth IRA, which provides no deduction but offers tax-free withdrawals later on and also lets you diversify your tax exposure, are the logical candidates, assuming you qualify.

But let's not get ahead of ourselves. The single most important thing you can do to get on the road to a secure retirement is to sign up for your 401(k) now. Every day you delay, the Price of Procrastination goes up.