Telling letter writers who already submitted that I am not applying to graduate school Summary of question 

I've been getting ready to apply to grad school, and now I have good reasons for not doing so. My letter writers have already uploaded their letters. Basically, it's the last minute, and I'm changing my mind, and not applying. How do I (a) thank them, (b) tactfully tell them I'm not applying, and (c) ask that they still write me a letter next year or the following year?

Details

For some months, I have been preparing to apply to graduate school. I have readied my test scores, research experience, and mostly finished my statements. It is December 1st, and I have already submitted some applications for fellowships. Over the past three weeks, I've sent emails for recommendation letters, which were uploaded by my recommenders (they were written last month, and the prior month). However one thing has happened this week: I realized that I had neglected to research the PhD students recently admitted to the programs to which I have applied. After doing so, I now understand that I am woefully under-prepared for graduate school relative to last year's cohort--even at my safety schools, which are around #50 on various popular ranking sites (I only mention rankings to demonstrate that I was not being overly arrogant in my school selection--though clearly, perhaps I was a little!). 

Unfortunately, now, I have an even bigger problem: even if I got into a great grad school, I don't think I could rise to the occasion like everyone around me would, and would probably be very demoralized by this. After much deliberation, I am considering applying next year. Over this year, I will work part-time, attempt to gain experience through personal projects (I am in computer science, and have research ideas, so this is feasible) and teach myself more advanced subjects, and then apply to work in a lab, or apply for a research-based master's degree, in one or two years. I went to a relatively unknown school with few courses in my area of interest, so I think the time will be well spent and increase my confidence and knowledge. I don't think I'm falling prey to imposter syndrome, because, well, the major conference publications, master's degrees at elite universities, and impressive resumes of the PhD students at my safety schools are rather objective measures of my relative inexperience.

Here is my question: how can I tactfully notify my letter writers that I am planning on not applying, while still thanking them for their recommendation, and letting them know that I would still appreciate their letter when I apply next year or the year after that? And faculty, if you were in this position, how would you feel about the student? I really don't want to anger my recommenders. They're excellent, hard-working, wonderful people, and I already feel guilty that I might be letting them down.
I had neglected to research the PhD students recently admitted to the programs to which I have applied.


Please don't compare yourself to others.  There are other, more productive comparisons to make, if you really need to make comparisons.

Compare your transcript with the course sequence at the schools you were going to apply to.  Do you have all, or almost all, of the prerequisites under your belt for your first two semesters?  If there are one or two courses missing, can you take those in winter, spring or summer?

It's often easiest to get a good start to graduate study if one doesn't significantly delay beginning.

I understand that you are concerned you may be being overambitious at this stage.  But if you received or are about to receive a Bachelor's degree, with good understanding and good grades, let that be your can of spinach to help you keep going with the applications.