If you are 35 years old and have not been able to start saving money substantially yet, let me tell you, that you are not the only one. There are quite a few people who are in the same boat and feel that they still have not done a significance contribution towards their own retirement corpus yet.
At this stage of your life, your most valuable asset is only time. And you must be feeling that if you had 36 hours instead of 24 hours everyday, you could have done better justice to your family’s monthly income! Well, trust me, so is the case with most others around you.
However, at 35 years of age, it is not late but definitely high time to start investing for your retirement, for your kid’s education, their future, etc.
Some basic rules:
- If you are a salaried person, look at building your wealth in a systematic manner over the months and years and not looking at lump sum investments.There are many fold benefits which include power of compounding and rupee cost averaging, which is explained below.
- If you are a professional or a businessman with no regular standard salaried income, you can look at investing in spurts but it is best to avoid timing the market and remaining invested should be the mantra!
- Taxation point of view should be considered when investing and after weighing the pros and cons, you must take a call.
Points to consider:
- With the known fact of rising life expectancy along with the advancements in technology and medicines, the average life expectancy of an Indian is expected to rise to 75 years. And with time, this will only rise further.
- Savings alone may not be enough. With inflation eating out of savings, a longer life means you will have to support yourself for that much longer to ensure a healthy and worry-free retirement.
- Thus to keep your investments inflation proof, you need to invest in tax efficient tools which give a subsequent post inflation growth.
- The basic societal and cultural changes in India with the joint family system falling out, it is likely that you will have to fend for yourself after you retire.
- The implication: you are likely to live at least 20-25 years in retirement with nothing but your investments to see you through.
Cost of delaying: Power of compounding
Let us understand this with an example. Consider Rohan and Rahul both plan to retire at 60 years of age and both have investments which give 15% annual return. However, Rohan started investing at he was 35 of Rs 20,000 monthly which Rahul didn’t consider investments till he was 45 and post that he started investing Rs 30,000 because he then realized that he started late.
So, Rohan invested Rs 20,000 p.m. for 25 years, i.e. total Rs 60 lacs and Rahul invested Rs 30,000 p.m. for 15 years, i.e. Rs 54 lacs. His investments were only 6 lacs short of Rohan and expected a return of 6-10 lacs less when they retired at 60. However, Rohan’s Retirement Corpus was Rs 6.49 CR while Rahul’s was only Rs 2.01 CR.
Even if Rohan invested for 10 years and stopped investing after he was 45, his retirement corpus would still have become Rs 4.48CR while Rahul even if he paid Rs 40,000 p.m. from 45 to 60 years would end up with a corpus of Rs 2.67 only.
This is the power of investing early. This is the power of compounding.
Systematic monthly investments, give an average return in a volatile market which means the highs and the lows of the market are evened out since you invest in a rising market as well as a falling market and hence get a fairly stable return of portfolio. This is called Rupee Cost Averaging and historically it has been seen that SIP, i.e. Systematic Investment Plans have given better returns than lump sum investments at any point of time.
Thus, remaining invested is more important than timing the market to make the most of power of compounding and rupee cost averaging.
Key Take Aways:
- People don’t start investing right away because they don’t think they have enough money to save. The trick is to START investing. A work begun is half done. A large initial commitment isn’t necessary.
- Start by investing regularly in a monthly systematic manner. However small it may seem now, the results may surprise you later.
- Never cut the tree, i.e. stop your investments! If you need money, you may take some part of your investments as long as you continue investing irrespective of the market downturns, your retirement will be a happy place
- Know your taxes and prudently choose tax efficient investment tools.
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