You may delay anything, but time will not. And the lost time can never be regained. When it comes to retirement planning, a small delay can cost big. Retirement is about managing one’s income in working years for comfortable non-working years. As all of us know, retirement means no current income. So, unless you plan and build a retirement corpus within time, you will be far away from peaceful retirement days. Retirement typically starts from 60 years of age and is usually accompanied by declining health. At such a sensitive juncture in life, any difficulty in financial needs will make you feel isolated and dependent. This is why one should not delay retirement planning.
Why Delay Happens
Retirement planning delay can happen due to two main reasons. One, you are not aware of why retirement planning is important. As a result, you never begin the process. It is only when you understand the need for a retirement corpus, do such people actually start the process. But, by then it is too late. Assume that you retire at 60 years of age, but start at 45 years. This means you will have 15 years only to save and invest in building the corpus. You may build a corpus, but will it be enough? Typically, a person today lives till 75-80 years of age. This means you will need to save for 20 years in just 15 years. That is quite impossible given the rate of savings.
Reason Two, another main factor why people delay retirement planning is when they continuously postpone the work due to some existing financial challenges. For instance, people with home loan burden find it tough to save extra. Then, there are financial responsibilities like child's school education, son/daughter college education, and marriage, etc., which can cost a bomb due to which someone may be forced to continuously delay retirement planning. This is a common situation for low-income and middle-income families where there is only one earning member.
How Much Do Delays Cost
Now, let us discuss how much does delay in retirement planning actually costs. The earlier you plan to retire, the bigger is the size of the corpus required. As you age, your risk appetite reduces. The risk appetite falls to zero as you approach the retirement age. Hence, avoid delays.
Let us take a look at an example. Assume you invest Rs 10,000 per month. If you start doing this for 25 years and your investment returns are like that of BSE Sensex, at the end of 25 years you will have a pre-tax corpus of Rs 1.7 crore. What if you delayed this process by just five years? This means you will do the same exercise for 80 per cent of 25 years. Is your final corpus 80 per cent of Rs1.7 crore? No, actually your corpus is Rs 1.1 crore i.e. over Rs 60 lakh less. So, a delay of a mere five years can give Rs 60 lakh less.
For every year that you delay retirement planning, your future corpus becomes smaller. Why does this happen? Is it because you save less? No, the problem is any delay in saving and investing means that you will not be able to enjoy the power of compounding. We will illustrate with an example. Let us assume investor Mr. A invests Rs 5,000 per month for 20 years to get Rs 38.3 lakh corpus at 10 per cent per annum return. Now, if Mr. B wants to save and invest for 10 years, can he reach the Rs 38.3 lakh target by doubling the per month amount to Rs 10,000? No. Even after doubling the amount to Rs 10,000, in 10 years they will get only Rs 20.7 lakh corpus. The only way for him to reach the corpus is by investing Rs 20,000 per month i.e. 4 times the Rs 5,000 done by Mr. A. The huge rise in investment required is happening because there is 50% less time and hence lower compounding effect in the case of Mr. B.
Steps To Take To Prevent Delay
It is important for you to understand why many fail at retirement planning. The main reason is they start late. That's it.
If you have been delaying retirement planning, correct it. Set the right course of action by starting off with what you have. If you begin, you can have a shot to make up for the deficit at a later stage. Don't wait for the perfect time to start. It might be too late by the time you start.
Making an early start for retirement planning is your best bet at being prepared. If you want to start today, do the below-mentioned things.
Decide your retirement age - Someone may wish to work beyond 60 years of age, while a few even wish to retire at 55. So, take a call and decide what is best for you. The higher your retirement age, the more time you have left with to plan for retirement.
Finalize retirement corpus target - A retirement corpus target is a financial number. You will require this amount post retirement to meet your expenses. You will withdraw an amount per month from the corpus. Take the help of a certified financial planner so that you can find your magic number. Calculating retirement corpus is not a simple task. There is no common number like Rs 50 lakh, Rs 1 crore, etc. Your retirement corpus number is likely to be different from your friends.
Create and follow the plan to save and invest - As retirement planning is a complicated exercise, seek the help of a financial planner. An honest and competent financial planner will develop a plan so that you can get to the retirement corpus target. Once the plan is set, immediately start saving and investing as per the plan. Monitor the plan and track progress at least once a year. If there are any changes, discuss with the financial planner and accordingly tweak your plan.
(The writer is a journalist with 14 years of experience)