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Why Starting Young To Plan Your Retirement Works! - Outside View by PersonalFN

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Why Starting Young To Plan Your Retirement Works!
Mar 18, 2019

'I have enough time to save before I retire, so why rush?', piped my cousin, Ankush, a junior software developer in an IT company.

Ankush had successfully completed his MBA with a distinction and right after congratulating him my mom asked him, 'What are your further plans? What's next?'

Ankush replied, 'It's been few months that I have started earning, so probably will enjoy my life. Do some travelling and after two years or so will buy my own car followed by buying a home and marriage.'

His dad, my uncle, Mr Shah responded, 'I told him to start saving for his retirement as well from now. But his argument is ... why the rush?'

Ankush interrupted, 'Yes exactly! I am just 25 years old. By age 30 I can start saving for my retirement'

[Read: What Are The Myths Holding You Back From Retirement Planning?]

Mr Shah continued, 'Aditi explain him what he is losing out on.'

Immediately I switched on my laptop and opened an excel sheet. Added all his details and showed him the amount that he would require for retirement as per the assumed current inflation of 8% and provided his expenses remain same across number of years.

Table 1: Corpus required for Retirement

Age (at present in years) 25 30 35 40
Retirement planned at age...(in years) 60 60 60 60
Life expectancy (in years) 85 85 85 85
Monthly Household Expenditure (in Rs) 18,000 18,000 18,000 18,000
Time to retirement (in years) 35 30 25 20
Expected inflation per year (in %) 8% 8% 8% 8%
Monthly Expenditure - at retirement age (in Rs) 2,66,136 1,81,128 1,23,273 83,897
Annual Expenditure at ret. Age (in Rs) 31,93,634 21,73,534 14,79,271 10,06,767
Post retirement inflation (in %) 7% 7% 7% 7%
Post retirement life expectancy (in years) 25 25 25 25
Expected return post retirement (in %) 6.95% 6.95% 6.95% 6.95%
Corpus required at time of retirement (In Rs) 80,290,384 54,644,286 37,189,983 25,310,877
(Illustration purpose only. The rates are assumed rates)

'Aditi that's huge,' Ankush was awed.

'To get Rs 80,290,384 let's see how much you need to start saving and investing monthly', I replied.

Mr Shah asked him during lunch, 'What did you see?'

'Big figures. Aditi I am curious now to see what you will show me further' Ankush replied in amazement.

'I assume you have showed him the retirement amount required considering current inflation?' Mr Shah asked me.

'Yes, now after lunch will show him the investment required to grow his retirement corpus.' I answered.

Immediately after lunch we looked at a different kind of table displayed below...

Table 2: Monthly investment to build retirement corpus

Current age (in years) 25 30 35 40
Retiement age (in years) 60 60 60 60
Years left to retire (in years) 35 30 25 20
Annual rate of return (%) 13% 13% 13% 13%
Retirement corpus (in Rs) 80,290,384 80,290,384 80,290,384 80,290,384
Monthly savings required (in Rs) 9,420 18,163 35,348 70,091
(Illustration purpose only. The rates are assumed rates)

'Wow, that's so cool.' Ankush exclaimed. 'So now if I start investing monthly Rs 9420 I can retire early peacefully and enjoy my retirement with a huge corpus.'

[Read: 5 Essential Prerequisites Before You Think of Retiring Early]

'Yes, as you can see there are more number of years ahead of you before you finally retire at age 60.' I continued, 'the power of compounding plays a vital role in growing your wealth for you with more number of years to retire.'

'Hence you should start investing for your retirement when you are young.'- Mr Shah and I said in unison.

[Read: Your Gateway To A Blissful Retirement]

Before they bid me and my mom goodbye, my uncle Mr Shah and Ankush, thanked me for opening his eyes and took details from me to contact PersonalfN financial planners to begin investing for his blissful retirement.

I hope you too are on the ball with your retirement planning. Remember, early bird gets a bigger worm. If you haven't started yet, begin now. Better late than never. So, start Now!

PS: If you too want to retire blissfully and rich, don't miss out on PersonalFN's Retire Rich service. This is a new and exclusive service with the sole intent of securing your retirement.

You will even gain the benefit of investing in Top 5 funds along with a DIY (Do It Yourself) retirement solution, where you can start planning for your retirement and potentially build a substantial corpus that could sustain you in the golden years of your life.

Author: Aditi Murkute

This article first appeared on PersonalFN here

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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