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The Cost of Inaction — Is a fear of cost keeping you away from retirement planning or an insurance-needs analysis? Consider this: Procrastination comes with its own price tag. Prepare for sticker shock.
By Dobby Gibson
"Do not put off until tomorrow what can be put off till day-after-tomorrow just as well,” Mark Twain famously wrote. With that kind of thinking, it’s no wonder this American literary icon faced near financial ruin. He certainly would have had a hard time retiring comfortably and securely today. Procrastination is the archenemy of good retirement planning.
Whether you want to accumulate a nest egg that will allow you to live independently or ensure you have adequate insurance coverage to protect that nest egg, time is of the essence. And while cost is an important consideration whether you’re shopping for an iPod or an IRA, if you’re allowing a fear of price tags to paralyze your financial decision-making, here’s the cruel irony: Each year you delay comes with a hefty cost.
Don’t believe it? Let’s do the math.
Insurance: Why You Can’t Wait
Nobody likes the thought of having his or her household budget constricted by another bill, especially when it’s in the form of something as unglamorous as an insurance premium payment. But delays in purchasing adequate life or disability income insurance could mean facing bills with lots of zeroes on them. Being under-covered means putting your retirement savings, children’s college education savings, even your home at risk.
Wait 10 years to shop for the insurance contract you need, and at best you’re going to pay a lot more for it. At worst, you may not qualify.
That said, “the true cost of delay is not determined by premiums,” advises Todd Yeiter, director of insurance product marketing for Thrivent Financial for Lutherans. “The greatest cost is not having the coverage when you need it. The consequences of something happening are so severe to your financial portfolio, and your family, that you must address it. It’s better to own insurance that you may not need, than need insurance that you don’t own because of a death, accident or illness.”
Insurance: Why Delaying = Dollars
Again, while the true cost of delaying insurance coverage is the huge amount of risk your existing investments and standard of living are already assuming, this chart illustrates an additional cost of inaction: rising premiums. As seen in the chart below, for every 10 years you delay a purchase of term life insurance, you can expect your premium cost to approximately double.
Bear in mind: Medical conditions such as high blood pressure or high cholesterol can make a difference when you apply for insurance coverage. Chronic or terminal illness, or accidents with life-long consequences, can make an even bigger impact. It’s another cost of delaying: Insurance companies charge more if you’re not healthy—or can even deny coverage.
Retirement Savings: Why You Can’t Wait
Saving for retirement can be done successfully in very modest amounts, but it must be sustained over time. Quite simply, the longer you put off investing, the less time your money has to grow. Your money needs time to grow—to literally earn returns on your growing assets.
 “If you’ve been delaying making regular contributions to a retirement account, you risk being dependent on some other source of income in retirement,” says Joseph Miscia Jr., a Thrivent Financial consultant in North Haven, Connecticut, “whether it’s Social Security, state assistance or your own family.” For many, it means working beyond age 65.
Retirement Savings: Why Delaying = Dollars
Looking at the chart below, you can see how, in this scenario, delaying a $1,000 investment in the S&P 500 just five years could mean leaving more than $4,000 in returns on the table.
If your financial planning mantra has been “I’ll worry about it tomorrow,” well, worry not. But more important, delay not. “Too often people over-estimate the value of their current savings, retirement plan assets and survivor’s income, and underestimate the importance of insurance,” says Ann Koplin, director of investment product marketing for Thrivent Financial for Lutherans. “Yet, many people are more afraid of outliving their assets than they are of dying. It’s critical that people young and old go through a proper review with a financial representative.”
Dobby Gibson is an editor of Thrivent magazine.
The Cost of Delaying Life Insurance*
Cost of $500,000 of 20-Year Term Life Insurance. For every 10 years you delay coverage, premiums tend to double.
The Cost of Delaying Retirement Saving**
How a five-year delay might affect a $1,000 investment that mirrors the S&P 500 index. (One cannot invest directly in an index.)
*These premium comparisons are not adjusted for inflation and are subject to change by Thrivent Financial. Life insurance requires proof of insurability. Your actual premiums may vary. Comparisons are based on Thrivent Financial 20-year Level Term II contract form 4224 (form NY4222 in New York).
**These hypothetical examples are for illustrative purposes only. They are not intended to represent the performance of any particular investment products, nor do they take into account any investment expenses, such as management fees or sales charges. The results would be lower if they were included. Investing during different time periods would produce different results due to market volatility.
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