Why Delay In Retirement Planning Can Cost You Dearly

If you have entered the workforce at 30 but have delayed investing by 10 years to build your retirement corpus, this 10-year gap can cost you as much as Rs 45.56 lakh. Before explaining how this figure has been arrived at, let’s first get a perspective of how seriously Indians take retirement planning from a study by Max Life. According to the India Retirement Index Study or IRIS 4.0 study, 44 per cent of Indians in the metro, tier I, and Tier II cities feel that the right age to start retirement planning is below 35 years. The research also indicates that 90 per cent of people aged more than 50 regret not having started retirement planning early.

These responses show that by and large, most people are aware of the importance of retirement planning, although not everyone began their investing journey as soon as they could. Other studies show that people’s awareness about retirement planning has increased post the Covid-19 pandemic, but only a few may have since actively started financial planning. Many people also don’t know how big the corpus fund should be for retirement.

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Highlighting the cost of delay in any activity we do, former UN Secretary-General Ban Ki-moon once said: “The longer we delay, the more we will pay”.

What You Could Miss Due To Delay?

Compounding Benefit: A delay can make a huge difference to your retirement corpus; the longer you stay invested, the longer you can ride the power of compounding in the market. For instance, a retirement corpus built over 30 years will certainly be bigger than one built over 20 years. In the latter scenario, one may have to invest more to achieve the same result. So, the earlier one starts, the easier the journey will be to reach the same milestone.

Cultivating Good Financial Habits: Good financial habits are key to financial security. An early start to planning will help you imbibe positive money habits, like discipline, budgeting, investing, tracking expenses, etc., which will complement your efforts to build a strong retirement corpus for your financial security in old age. Good financial habits ensure you don’t need to compromise your lifestyle when you are not actively working.

Insurance Cost: Medical advances have increased life expectancy but come at a high cost. Insurance can protect you against such expenses. However, if you buy it late, the premiums can be higher. So, buy your insurance cover when you are young. Insurance policies also cover pre-existing diseases, subject to a waiting period. If you buy the cover early, you probably can avoid the waiting period because serious diseases usually show up in middle age or late in life.

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How A Delay In Investing Can Cost You More?

Here’s an example. Mr. Sen is 30. He spends around Rs 65,000 annually. He wants to retire at 60 and expects to live till 80. Considering his present expenses, the current inflation at 7 per cent,

the post-retirement inflation at 6 per cent, and the post-tax return on investment at 10 per cent, he will need a corpus of Rs 7.7 crore (Rs 7,68,83,760).

To accumulate this corpus, he must save Rs 35,409 monthly until retirement. If he delays it, he must invest 10.7 per cent more (Rs 39,188) monthly to accumulate the same corpus. If the delay is more than a year, he will need to invest Rs 43,398 monthly, and if he delays by 10 years, the monthly investments must be Rs 1,01,694 to accumulate Rs 7.7 core at retirement. So, the longer the delays, the higher the cost of achieving the same result in retirement.

Sen will accumulate around Rs 70 lakh by 60 if he invests Rs 35,409 monthly (Rs 4,24,908) from the age of 30 till retirement, with an annual return of 10 per cent. If he starts investing at 40, his total investments would be Rs 24.34 lakh. So, a delay of 10 years would cost him Rs 45.56 lakh.

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What Can You Do?

As this proverb reminds us, the time to repair the roof is when the sun is shining. So, start planning when the sun is still shining and you are earning.