Earlier this year I mentioned that one of the most powerful tools in an investor's kit is the miracle of compound interest. Well here's another reason why you want to start saving sooner rather than later.
Investors have until their tax-filing deadline--usually April 15--to make an IRA contribution if they want it to count for the year prior. Perhaps not surprisingly, many investors take it down to the wire, according to a study from Vanguard, squeaking in their contributions right before the deadline rather than investing when they're first eligible (Jan. 1 of the year before). Those last-minute IRA contributions have less time to compound--even if it's only 15 months at a time--and that can add up to some serious money over time. They end up paying a "procrastination penalty" equivalent to giving up $15,500 of compounding interest over 30 years.
'Procrastination penalty' over time ($165,000 contribution over 30 years) - Source: Vanguard
Investors who don't have the full contribution amount at the start of the year are better off initiating an auto-investment plan with their IRAs, investing fixed installments per month until they hit the limit.