Moneycontrol
Jan 18, 2018 12:51 PM IST | Source: Moneycontrol.com

Undecided when to start saving for retirement? Here's the ideal time to begin

The earlier you start investing, the greater effect compounding will have on your investments.

Sarbajeet Sen

The Chairman, Pension Fund Regulatory and Development Authority (PFRDA), Hemant Contractor, recently said that the pension regulator is looking at the option of allowing minors to open retirement accounts under the National Pension System (NPS). According to reports, the Authority is looking at legal implication of such a move. A present, any citizen between 18 and 65 years of age can open an NPS account.

Being a minor and starting to build a retirement corpus! It might seem a strange thought to many. Is it too early a time in life to take up a long-term investment journey towards retirement? So, how early should one start thinking of retirement and when should one start building a corpus for the golden years? Moneycontrol asked some top personal finance advisors and experts on what they felt was the correct time and age to start saving for retirement.

“The best age to start thinking about retirement is when you start working in your 20s. At that point, retirement is a long way off, and doesn’t seem worth bothering about. However, it is also the time when your responsibilities are fewer and with a little effort, you can save a great deal more than say in your 30s when you have the family responsibilities with all associated expenses of home loans, car loans and children’s schooling expenses. So putting aside a dedicated amount every month to build up a retirement corpus right from your 20s is a good idea,” Adhil Shetty CEO and Co-founder Bankbazaar.com told Moneycontrol.

Shetty points out starting early gives you three benefits:

  • You have more time to build up a corpus. So you can afford to start with a smaller amount and keep adding on to it over time.

  • You can aim for a bigger corpus. Since you would remain invested for a longer time the total money you invest as well as the returns on the invested money would be higher.

  • You can get higher returns on investment. Since you start young, you can allocate more investments to equity instruments with higher returns.

Amar Pandit, CFA is the Founder & Chief Happiness Officer at HappynessFactory.in also says an early start helps in gaining the advantage of compounding. “Most of us postpone saving and investing towards retirement, assuming we will have enough time to accumulate the retirement corpus in the coming years. However, this is one of the biggest money mistakes we commit,” Pandit said.

He said that while we continue working for 30-40 years, we do not give our investments enough time to work on our goals. “’Time Creates Money’ i.e. compounding over the years will work wonders on your investments. The earlier you start investing, the greater effect compounding will have on your investments. For instance, consider a scenario where you need to accumulate a retirement corpus of Rs 7 Crore by the age 60. If you start saving from the age of 40, you will need to invest Rs 70,000 per month in an investment that yields 12% p.a. to accumulate the corpus. On the other hand, if you had started saving from the age 30, you need an investment of only Rs 20,000 per month to accumulate the same corpus at age 60. This is the power of compounding,” Pandit said.

Rajiv Shastri, ED and CEO, Essel Mutual Fund says the ideal time for thinking of retirement is “as early as possible.” However, he says one should give a hard look at one’s finances before commencing the journey. “Before one starts investing one needs to be comfortable with the state of one's finances. There are some people who get comfortable with their finances in the first month of their career and there are some who may take some time, so there cannot be a one size fits all approach. But basically one should start investing as soon as savings become possible. The sooner one invests the more time their money has to compound, grow and create wealth,” Shastri said.

He says a person typically starts working at the age of 24-25 and works for around 35 years which is till the age of 60. “With improving healthcare and longer life expectancy, it is estimated that most millennials will live beyond 90 years of age. A person would have 35 years of earning have to support about 30 years of a non-earning life. So the sooner one starts and allows the money more time to grow, the better it is,” Shastri said.
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