retirement planning
Retirement planning: It seems strange to most people to think about retirement with their first job. Often we think that there is still a lot of time to save money for old age, first fulfill other needs of life. But if you too are postponing retirement planning thinking the same thing, then it can prove to be the biggest financial mistake of your life. A simple investment calculation has proved that if you start investing for retirement at the age of 45 instead of 25, your monthly SIP (Systematic Investment Plan) amount increases by 233 percent. That is, at the age when you are looking for relief from your responsibilities, a heavy burden of investment will fall on your pocket.
25, 35 or 45… How does the investment burden increase with age?
Let us understand this with a very common example. Suppose today your monthly household expenditure is Rs 1 lakh. If we assume an inflation rate of 7 percent, retirement at the age of 60 and a lifespan of up to 85 years, and also assume a 12 percent annual return on investment, then the figures are shocking.
If you start investing from the age of 25, then to achieve this goal you will have to do SIP of only Rs 43,994 every month. Whereas, if you delay by 10 years and start at the age of 35, this monthly investment will increase by 74 percent to Rs 76,550. But the real shock comes when one wakes up to retirement at the age of 45. Due to this delay of 20 years, the monthly SIP burden directly increases by 233 percent to Rs 1.46 lakh per month.
Why does SIP figure increase so fast?
The answer to this is the power of ‘compounding’ i.e. compound interest. When you start investing at the age of 25, your money gets a long time of 35 years to grow and compound. At the same time, someone who starts at the age of 45 has only 15 years left to reach this goal.
Explaining the math, Nehal Mota, co-founder of Finnovate, says, “A 25-year-old has 35 years to invest before retirement, which makes the SIP amount of every month seem very small and easy. A 45-year-old has only 15 years. So, if you want a peaceful life at the age of 60, then don’t wait for a big salary, but start investing today.”
Interestingly, according to 7 percent inflation rate, the monthly expenditure of a 25 year old investor at the age of 60 will be Rs 10.68 lakh. At the same time, for a 45 year old investor it will be Rs 2.76 lakh per month. Despite needing less money in future, due to less time left for investment, a 45 year old person has to make a bigger SIP today.
Understand the loss of delay according to your current expenses
This mathematics does not apply only to those who spend Rs 1 lakh, but the loss of delay is equal in every kind of lifestyle. If your current monthly expenditure is Rs 50,000, then at the age of 25 you need a SIP of only Rs 21,997 per month. But at the age of 45, this amount will increase to around Rs 73,000 per month. Similarly, if your expenses are Rs 1.5 lakh, your SIP at age 25 will be Rs 65,991, which will directly touch the huge figure of Rs 2.20 lakh per month if delayed till age 45.
It’s not the highest return, time is the real key.
One thing is clear from all this mathematics that a successful retirement planning does not mean finding the fund that gives the highest returns in the stock market. The real magic lies in giving your money enough time to compound. Even a small monthly SIP started between your 20s and 30s can create a huge retirement fund for you in the coming three decades, which will not leave you dependent on anyone in old age.
Disclaimer: This article is for information only and should not be considered as investment advice in any way. TV9 Bharatvarsha advises its readers and viewers to consult their financial advisors before taking any money-related decisions.
