We want to have a peaceful retirement life. The biggest worry is running out of money in the sunset years with no source of income to support our daily needs.
9 out of 10 Indians worry about their savings not lasting through retirement, according to Max Life Insurance's India Retirement Index Study. Why do we keep procrastinating savings for retirement? There are a number of factors ranging from the thought process of living to the fullest today to saving from tomorrow to priority goals such as going for a vacation. Delaying retirement planning could add up to your burden as the more you wait, the more aggressive you will have to save.
For example, if you are a 20 year old earner and want a corpus of Rs 5 crore at 60, you need to save only Rs 4,250 monthly for the next 40 years, assuming the rate of return of 12 per cent. If you are 50 and have missed the bus of starting early but still want to save 5 crore till retirement, you need to save 2.17 lakh a month in the next 10 years.
The benefits of compounding work to their advantage is that it gives your money more time to grow. If you start saving Rs 4,250 a month at the age of 30, it will only add up to Rs 1.48 crore. The 10 years of compounding can give you an edge of over 3 crore.
The most common mistake investors make is not to set their retirement age and corpus at an early age. They plan to retire after turning 35, which is not the right habit.
Each investor should plan for retirement from their first job at around 22 years of age and build a long-term portfolio with the multiplier benefit of compounding. Both discussed individuals will have a significant difference in their retirement corpus even if they invest the same amount of money, that is, in the same product, due to the higher power of compounding for the additional 13 years in the second person case, Amit Jain, Chief Executive and Co-founder of Ashika Wealth Advisors, told Business Today.
Financial stress-free retirement is not about attaining a ballpark figure of Rs 1 or 5 crore. The process to arrive at retirement corpus must be in tune with your needs and lifestyle and the number of years left for retirement. Once you have these variables in place, you can plan better sunset years.