Retirement planning: Why you must start early

Last post 07-22-2013 11:59 AM by RehanBurani. 2 replies.
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  • 09-02-2008 1:54 AM

    • KAMAL
    • Top 25 Contributor
    • Joined on 07-19-2008
    • Posts 36
    • Points 555

    Retirement planning: Why you must start early

    Those who are unwilling to invest in the future haven't earned one -- H.W.Lewis



                               why you should start planning for retirement at a very young age:

    1. Life expectancy: As of 2007 the life expectancy at birth for males is 67 years and 71 years for females. With advancement in technology life expectancy is likely to increase. Result: You will have to fend for more number of years post retirement.

    2. Medical emergencies: With age come health problems. With health problems, come medical expenditure which may make a huge dent in your income post retirement. Failure here could lead you to liquidate (sell) your assets in order to meet such expenses. Remember mediclaims do not always suffice.


    3. Nuclear families: Gone are the days when people use to have an entire cricket team making a family. Today's youth prefer not more than two children. With westernisation coming in, the culture of joint family is changing. They prefer independence and stay away from their family.  Hence people have to develop a corpus to last them through their retirement without any help from family.

    4. No government sponsored pension plan: Unlike the US and UK where they have IRA and state pension respectively as social security benefit during retirement, the government of India does not provide such benefits. So again you are on your own.


    5. Job hopping: With youngsters hopping jobs regularly they do not get benefit of plans like super annuity and gratuity. Both these require certain number of working years spent in the service of a particular employer.


    6. Inflation: As you need to worry about it you need to account for it as well. You need to take into account inflation while calculating your retirement corpus as well as your returns.

    Power of compounding and why you must start early

    Let's take an example to understand it better. Say X is 28 years and wants to retire at 60. S/he has 32 years to go. If s/he starts investing Rs 1,500 per month for the next 30 years, then at the rate of 15 per cent (assuming s/he is doing a systematic investment plan in equity mutual funds) s/he will have a corpus of Rs 1.03 crore.

    Where as if you don't start at an early and at 50 you decide to start investing then to have a corpus of Rs one crore you will require an investment of Rs 41,500 per month!

    While this may not be possible starting your retirement planning when young is. It is not necessary to start with a bang. You can start with small amounts and increase it as your salary increases. Also, if you start early and you have time with you, you can gain advantage of high returns and maximise your investments by investing in equities or equity mutual funds.

    How much would you require at retirement

    Your first step in the process is to determine the amount you will require to sustain you through your retirement.

    Research shows that generally 80 to 90 per cent of a person's pre-retirement income suffices to maintain her/his current standard of living. You might argue that your standard of living is bound to go higher with increase in your income, and so will the expenditure. Hence you have to take into account increase in your annual income over the years. The components to be taken into account when calculating your retirement corpus are:

    ~ Your current age
    ~ Expected age of retirement
    ~ Life expectancy
    ~ Years after retirement
    ~ Current earnings
    ~ Expected annual growth (in percentage) in income
    ~ Annual income at retirement age
    ~ Rate of return on retirement corpus (in percentage)
    ~ Inflation rate (percentage)
    ~ Inflation adjusted rate of return/Real rate of return (in percentage)

    After calculating your retirement corpus the next step would be to find the amount required to save to reach there. The components involved to derive this figure are:

    ~ Rate of return during accumulation stage (in percentage)
    ~ Existing invested corpus
    ~ Number of years to retirement

    The motive behind listing these components is to explain that it is not merely accumulating Rs one crore for retirement. The right retirement corpus is one which helps you maintain your standard of living even after retirement.


    • Post Points: 35
  • 10-06-2008 1:13 AM In reply to

    • ruchik
    • Top 100 Contributor
    • Joined on 08-19-2008
    • Posts 6
    • Points 90

    Re: Retirement planning: Why you must start early

    Getting started is probably the hardest part of a retirement plan. It's so easy to think your retirement is decades away so why not wait just a little longer to start planning for it. Procrastination could cause you to lose thousands of dollars. Procrastination could mean the difference between a comfortable retirement and one where you are barely getting by. If you're between the ages of 20 and 40, you're probably buying a house, a car, furniture, and thinking about your kid's college fund. You probably think you can't afford to save for your retirement at this time. You're wrong. Even a small amount invested wisely could be very beneficial in years to come. Here r some points that should taken under consideration

    Goal Setting
    OK, you've decided to start planning for your retirement so where do you go from here? The first thing you must do is to list your retirement goals. Do you want to travel? What about moving to a better climate? Maybe you want to stay where you are and enjoy gardening. Whatever your goals, you will need an income. You could quite possibly be retired for 30 or more years so you need a plan that will provide an income for several years. How much money will you actually need when you retire? Use this handy calculator to find the answer to this question.

    Next, if you already haven't done so, create a budget. If you don't have a clue about how much you spend from month to month, keep a journal of every dime you spend for three months. You'll see where your money is going and be able to better manage expenses. Your budget must include a payment to your retirement plan even if it's only a few dollars.

    Family Members
    Discuss your retirement plans with your family, especially your spouse or significant other. Chances are you'll both retire at about the same time so you need to be in agreement on this critical part of your life. If you both have a career, you will both be contributing to the retirement fund. Make your decisions together and try to develop a plan that will be acceptable to both of you.

    Watch for Plan Busters
    Even the best retirement plan could be in serious trouble if you allow yourself to dip into it for frivolous luxuries. If your budget doesn't seem to cover all your expenses, chances are you are confusing necessities with luxuries. Do you really need a pager and cellular phone for everyone in the family? Do you need call forwarding, caller ID, or the second phone line? Little things eat away at your budget. You don't have to do without, just spend wisely.


    • Post Points: 5
  • 07-22-2013 11:59 AM In reply to

    Re: Retirement planning: Why you must start early

     Thank you, Kamal for starting this post and Ruchik for adding other valuable points to the same. I too agree that a person should plan well in advance for his post retirement period and all the above mentioned points will be of a real help for all. This information will help in selecting one of the best pension plans and that too with much required information.

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    • Post Points: 5
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