Wake Up To Your Retirement - Earlier The Better

Wake Up to Your Retirement - Earlier The Better

In the earlier era of joint families the new generations used to take care of their parents, grand parents and other elders of the family. As businesses used to be family enterprise and everyone could withdraw from them as per their requirements or share, retirement planning was not so much focussed upon in earlier times. Then the world moved from joint families to nuclear families. And today we see lot of parents living alone and sometimes even one of the surviving parent living alone as children move out for job opportunities or business ventures and sometimes even after marriage.

While someone in a regular job has a fixed retirement age, most of people in business or even professionals will not be in the best of health and spirits to continue working in 60s and beyond.  

So retirement planning becomes very important in todays world of shrinking family size, children moving out,  lavish lifestyles & day by day increasing prices. The beauty of retirement planning is that it is a very individual goal and there is no one size fits all plan. What is true for all is that you need to start saving and investing early. A delay or procrastination here can cause you to struggle in your golden years.

So when is a good time to plan for retirement?

Mid 20s & early 30s - Best Time for Retirement Planning

Retirement is usually the last thing on the minds of people in early years of their work life. In this phase, living life to the fullest is the motto. Ironically, this is also the time to inculcate the savings habit and starting your investing journey. From this stage, an investment has roughly 30-35 years to grow and compound wealth. For example: A monthly SIP of Rs. 10,000 for 35 years @12% return would accumulate Rs. 6.5 crs and if you keep increasing your SIP by just 7% annually, then the amount will be Rs. 12.31 crs. The more you save in your early years, the better you will be able to retire. Another benefit is that you have time on your side to make investing mistakes and learn from them. 

Late 30s & early 40s - Second Best Time to Plan Retirement

If you missed investing early in life, it becomes much more difficult to save in middle ages. To begin with you are not in the habit of savings and secondly in this phase your responsibilities increase manifold. Servicing to big ticket purchases like a house through home loan, raising kids, their education expenses will ensure savings will be limited during this period. Some may even have to support their parents in their old age. From here on, you are left with just about 15-20 years for retirement. Now, to generate a corpus of Rs. 6.5 crs, you need to invest about Rs. 70,000 monthly for 20 years @ 12% return.

Late 40s & early 50s - Better Late than Never

This is the time when your children will need money for higher education. Add to that your increasing medical expenses, children’s marriage etc. With 10-12 years remaining for retirement, to generate a corpus of Rs. 6.5 crs, @ 12% return, you will need to invest Rs. 2.8 lacs per month for 10 years. This shows the impact of delay on your retirement corpus.

Touching 60 or Around - Manage Your Accumulated Corpus Well

As you near retirement, it is extremely important to manage your savings/investments well to support your retirement in the best possible manner. While there may be no other sources of income, it is also the time when you cannot go wrong with this money. Owing to better medical facilities, you should plan for till the age of 85, i.e. at least 25 years of retired life.

I recently met a couple nearing 60 years of age, looking to retire in 2-3 years with about Rs. 2.5 crs in savings across various financial instruments. They were under the illusion that they could live a luxurious retirement by withdrawing Rs. 1 lac per month out of interest/gains of their accumulated corpus while their corpus continues to grow. They also wanted to give some money to their kid. When they got their financial planning done, they realized that due to inflation their withdrawals will have to keep increasing every year by 6% for maintain their living standards and their money would get exhausted before the age of 85. Now, they will have to settle for lower withdrawals to ensure that the money last till 85 years atleast.

To conclude, the best thing you can do for yourself is to start investing early and regularly. Never copy anyone’s portfolio as each individuals’ retirement plan will be different given the varying family structure and financial condition, goals/aspirations and different risk profile. So, seek the help of a financial advisor who can help you prepare your retirement plan. Then be disciplined in investing with focus on retirement goal and ignore the ups and downs in financial markets and the noise associated.