Retirement? Who wants to retire? I just started working, maybe in next thirty years…
Retirement? Hell yeah! Can I retire at 45? How much do I need?
Retirement? Seems pretty far away. Already have my plates full, can’t take up one more, not now, perhaps later sometime, when I have enough money.
Whatever your excuse is, postponing retirement investment can be costly. Here’s how-
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Retirement Goal in Your Financial Goals List
Assuming you are about 30 years of age now, have a spouse (about the same age) and two kids, of five years and one year age. If we count all the financial goals you will encounter before retirement here is what it’d look like (all prices as current cost):
- Buying a Car worth Rs. 800,000 in three years
- Buying a house worth Rs. 60 lakhs in five years
- 1st Child’s higher education expense 12 years from now Rs. 10 lakhs
- 2nd Child’s higher education expense 15 years from now Rs. 10 lakhs
- 1st Child’s Marriage expenses 20 years from now Rs. 10 lakhs
- 2nd Child’s marriage expense 24 years from now Rs. 10 lakhs
- Buying a New Vehicle 10 years from now Rs. 800,000
This list only includes the obvious goals for a family of four and are put very conservatively. This list can burgeon depending on your aspirations. After satisfying all these, do you feel confident about saving enough for your retirement?
How Much Will You Need to Retire Peacefully?
If the long-term inflation is 6%, the real cost of your goal will be as given in the following table. Meaning, you’ll be paying the amount mentioned under “Future Cost” column to meet the goal expenses…
| Sr. # | Goal | Current Cost | Years to Goal | Future Cost (₹) |
| 1 | Buy a Car | 800,000 | 3 | 950,000 |
| 2 | Buy a House | 60,00,000 | 5 | 80,30,000 |
| 3 | Replace the Car | 800,000 | 10 | 14,30,000 |
| 4 | 1st Child’s Higher Education | 10,00,000 | 12 | 20,10,000 |
| 5 | 2nd Child’s Higher Education | 10,00,000 | 15 | 24,00,000 |
| 6 | 1st Child’s Marriage | 10,00,000 | 20 | 32,10,000 |
| 7 | 2nd Child’s Marriage | 10,00,000 | 24 | 40,50,000 |
| 8 | Retirement (see explanation) |
Retirement goal calculation explained: Assuming that, the both you and your spouse are spending Rs. 50,000 a month on your expenses. This amount excludes the money spent on kids’ expenses, school fee, etc. Therefore, you can expect to carry the same into your retirement.
Meaning, when you retire, you will need an amount equivalent to Rs. 50,000 now to continue your life without any major lifestyle change. To meet such expense for next 25 years, (that is, preparing for at least 25 years of life after retirement) you’ll need to accumulate about Rs. 69 lakhs by the age of 60.
Retirement Goal Vs. Other Goals
Thus, your retirement goal requires you to accumulate at least Rs. 69 lakhs in the next 30 years. This amount will exclusively have to be set aside for one goal – “Your Retirement.” And unless you plan to buy a corporate jet in the near future, this is going to be the single largest financial goal of your life.
Cost Comparison of All Your Financial Goals
Cost of Delaying Retirement Investments
The cost of delay on your retirement plan can be understood by the example given below. This example may have been presented multiple times before. But, it is the simplest and most effective one for the purpose. Thus, once again we quote the same.
Two friends Prashant and Yuvraj started their careers at the same age, at almost similar packages. The only difference was that Prashant started investing from the first month onwards. But, Yuvraj said he wants to enjoy his newfound financial freedom, there’s whole life to get disciplined.
Now Prashant started investing Rs. 100,000 each year starting at the age of 25, which he will continue until the age of 60. Yuvraj will start investing at the age of 40, but he’ll be investing Rs. 200,000 a year.
Now let’s see who gets what at the age of 60 if both receive a rate of return of 10% p.a. on their investments:
- Prashant invested Rs. 100,000 each year for 30 years will receive Rs. 1.65 crores
- Yuvraj after investing Rs. 200,000 per year for 20 years will only make about Rs. 1.15 crores by the age of 60.
The difference their retirement corpuses make in their post-retirement incomes will force one of them to change their lifestyles drastically. You can guess which one:
- Prashant can receive a post-retirement income of Rs. 68,000 per month investing the corpus at a safe rate of 8% p.a. while also accounting for inflation of 6% p.a.
- Yuvraj, on the other hand, can only receive about Rs. 47,000 per month for next 25 years.
The conclusion is simple, “Don’t underestimate the cost of delaying your Retirement Investments, start as soon as possible. Even if your initial amounts are small, time will compensate for it.”
Related Articles:
- Senior Citizen and How to invest Retirement money?
- Goals Based Financial Planning
- Beginner to Investing – Approaches, Plan, Psychology
- Insights into Financial Goals of Indians!
- Saving For Retirement : Pension Plans,NPS,EPF,PPF
So true, the earlier the better. I got started over again late due to some bad business dealings. So I’ll be investing more and withdrawing less. My children won’t suffer the same fate though. I got them started early, even before they we adults. It’s so much easier to retire young if you start early and let compounding work.