“I am 44 years of age, my wife is 40 years of age..and we have only Rs. 30,00,000 for retirement and we realize that we need much much more for retirement, have you written anything for a late starter like me?”
This is not an isolated case, there are many people who are hit suddenly with how much of money they have and how much they need for retirement. Many parents take a look at their finances when the kids leave the house and realize that they will need much more. I am very happy that this couple has already had a look at their ‘retirement kitty’ and started acting on that.
Everybody does not read ‘Retire Rich: Invest Rs. 40 a day’ and start investing Rs. 40 a day at the age of 23! If everybody followed the path of quickly repaying student loans, investing in equities, not touching the retirement corpus, etc. then there would be no late starters. However family reasons, not knowing about equities, compounding etc. means many people start late. What can really be done?
- this couple has got up at age 44 and has about 16 years for the H and 20 years for the wife – not too bad.
- in his email he also said that he and his wife can save/invest Rs. 100,000 per month per head
- his wife is doing her own business and is likely to be able to work till her age of 70.
- their kids will be out of the house in about 11 years time when they can start saving/investing more
- they can/ are able to increase the savings by 5% every year
Let’s take a look at an example to see how the numbers could work. Let’s say you’re a couple earning Rs. 10,000,000 a year and have nothing saved for retirement at age 44. Not the best of situations, but hey you have some time to go! Yes you have to save substantially more than Rs. 40 a day! Assuming you keep a steady savings rate but see a 5% rise in (SIP) salary every year here’s how your ending balances would look after just thirteen years of saving:
Their SIP amount would have gone up from 24L a year to about 34L – and at the age of 60 they will have Rs. 11 crores for their retirement. I am assuming that this would be sufficient for their retirement.
However, here the assumption is that they cannot fund expensive education / marriage for their kids – I am assuming that they have other savings/ investments for their other expenses.
- How much you save (using it a little interchangeably with investing) will have a much larger impact on the amount accumulated than your investment returns. Doubling your investment returns will return in a little increase, but increase in the amount saved will have a greater impact. For example, 12% returns at a 10% savings rate will give you a smaller balance after sixteen years than 10% returns at a 20% savings rate. So if this couple can increase the SIP amount by 10% instead of 5%, their corpus could be much higher.
- Saving more money is something that you can do. Market returns are a function of the market, asset allocation, volatility, the churn in your stomach, etc. Hence it makes more sense to concentrate on saving more – 16 years is too short for the market to play out its games!
- Working longer gives you another advantage. It means you will not touch your corpus till say age 65 – I have seen teachers and professors being able to hold on to their jobs till they are 69 and then retire to a pensioned life. This is played out in teachers portfolios – they save/ invest small amounts – but over much longer periods, and if handled well can raise a lot of money. Even for this couple if the wife can work till she is 70 (assuming that he retires at 58) it means they need not touch the corpus till she is 70 – and he is 75!
- If the corpus remained untouched till his age of 75 it would be worth at least Rs. 20 crores, if not more!!
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