One of the most commonly asked question related to the world of investing is – how soon should I start investing for my retirement ? We try our best not to bite our tongue when replying to this question. The best answer is – you are already late mate ! Earlier the better if you want to retire with a healthy financial balance.
When it comes to arriving at the finances relating to retirement, the questions which need answering are :
1. How much do you need to retire ?
2. When do you start to invest and how long do you continue to invest ?
3. When do you want to retire ?
4. How much return would your investments yield ?
Interestingly, the combination of each of the four questions has a strong bearing on the amount of retirement corpus which you will enjoy and when you can retirement. It also has an impact on how much you need to invest regularly to reach your retirement goals.
Let me take an example to explain it better. We have taken the following assumptions to freeze some of the complexities associated with the analysis :
1. Retirement age is 60 years
2. Investments yield yearly 15% return
3. The person invests yearly Rs. 10,000.
The results were as we expected, but with a shocking gap. If a person started to invest when he was 25 years of age, by the time he was 60, he would have Rs. 1 crore. However, if he delayed by just 5 years, the retirement corpus will half to Rs. 50 lac. You may refer to the diagram below and it would be evident that the later you leave to plan for your retirement, the lesser you will have at the time of your retirement.
Having said that, we did an inverse analysis. Assuming that a person needed Rs. 1 crore at the time of retirement, how much would he need to invest on a yearly basis if the funds are enjoying an annual return of 15%. The results were on expected lines, but again with a lot of variance. The out come was most favourable for a person who starts early in their life and needs to invest just Rs. 10K per year to get 1 crore mark by the time he is 60. However, with every 5 years delay, this amount doubles. A person of 30 years will need Rs. 20K per year, 35 years will need 40K plus and so on.
The aim of this article is not to scare or demotivate our readers who are not as lucky as our young readers who have already started to plan for their retirement. However, if one knows that the more they delay, the heavier would be the price they will need to pay to cater to their retirement needs. Unlike developed economies, the government in India is not going to support the needs of the people reaching their retirement age. Hence, the aim should be to take your retirement into your own hands and start as early as possible to plan and invest.
Some of the other things which you need to bear in mind while planning for your retirement are :
1. Invest early and regularly. One of the best tools available to assist you in your investments could be Mutual Funds via Systematic Investment Plans
2. Take appropriate insurances to avoid shocking your financial plan. Some of the insurances you may want to consider are :
Start early and retire early, happily and gracefully.