The High Cost of delaying your Retirement Planning

Being human, we all procrastinate from time to time. We give less importance in our priorities to tasks that are unpleasant or far into the future than those which are rewarding and confronting us today. Similarly, we tend to put off painful but important financial decisions like saving for retirement, compared to funding for an immediate and rewarding goal like vacation. As James Clear says in his best-selling book Atomic Habits- the human brain is evolved to prioritise immediate rewards over delayed rewards.

That is why saving money for continuous 15-20 years for retirement fund before your actions deliver the intended pay off can be an uphill task. In the initial working years, no one thinks about retirement planning. Many would consider it futile too. Post marriage – an average working person is juggling with various financial goals to meet – home EMI, children school fees, buying a car, etc. Retirement goal thus takes a back seat.

But there can be actual grave consequences in delaying retirement planning. Let the numbers do the talking here.

There are two assumptions made in the above calculations. One is that the SIP amount increases by 10 per cent every year.  And an average return of 12 per cent per annum is considered.

Let us draw some interesting inferences from this table:

  • Any youngster who starts investing at 25 with a Rs.5,000 SIP in a disciplined manner will be able to accumulate a huge Rs.10.2 crore at 60.
  • A delay of 5 years means that this corpus gets smaller by Rs.1.8 crore for a 30 year old.
  • Further, a 40 year old starting at 25,000, nearly 5 times the SIP amount will still not be able to match the corpus of someone who started investing at 25. At 60, he would have accumulated a corpus of Rs.6.32 crore, nearly Rs.4 crore less.
  • Also, an investor starting at 25 or even 30 have greater chances of early retirement with a significant portfolio at age 50.  A 40 year old despite investing 5 times more will have a corpus that is more than half compared to a 25 year old.

It is obvious from the above calculations that the more you delay, the less time you have to compound your investments. Delaying investments for long term goals costs real money and a lot of it. To compensate for the time lost, you will have to invest a lot more to match the target corpus when started early. Even though your income and savings would have risen in the 40s, it would still imply greater pressure on your savings to meet the same long-term financial goals.

Consequently, the possibility of accumulating the desired retirement kitty at 60 becomes difficult and poses the serious risk of outliving the savings in twilight years. Not to forget the other issues in retirement – inflation, high healthcare costs, no social security measures, etc. And, a typical challenge a millennial parent would face in the future. Late marriage and starting a family late will ensure that financial responsibilities are unlikely to get over at 60.

To conclude, compounding of your money depends on three factors – the amount you invest, the returns you earn and the time you stay invested. Of these, the time factor is the most important. The power of compounding works wonders when investing for a long-term goal like retirement planning is started early and you have time on your side. Even if then you make a few investing mistakes during the 25-30 year accumulation phase and achieve lower than desired return in some of the years, you would still be doing fine because you started early.  The importance of early investing thus cannot be undermined. So, get going and at least make a start as soon as possible for your retirement planning.

As a Chinese philosopher popularly quoted –

The man who moves a mountain begins by carrying away small stones’ – Confucious



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