Why Early Retirement Planning is Important

Now a days one video has gone viral where one person at the age of 75 year sells toys for making living. He travels daily 150 KM to and from Delhi to sell the toys. He was the manager at one big American company before retirement. You can see it here. 

After seeing the video I was wondering how many people after seeing this video will take charge of their own financial life and plan for retirement and start investing for the same. 

                     Image Courtesy @ CignaFinance 

Let me begin with some questions. 

1. How many want to spend their post retirement life financially independent? Almost Everyone!! 

2. How many have done the retirement planning? Very Few!! 

Many people ignore the retirement planning thinking that they have enough time to plan the retirement and when they actually plans they found that it is very difficult for them to accumulate required amount for retirement and to accumulate the required amount they have to extend their retirement year. 

Retirement planning is as important as the planning for other life goals and it is easier to achieve the retirement goal if you start early. 

Suppose you have to reach a place at 2:00 P.M. which is 5 KM away from your location and there is no transport available. Let’s see three situations to reach the destination. 

1. If you start around 1 P.M. then you can easily cover the distance by walking.

2. If you start around 1:30 P.M. then you have to walk fast and may have to run also to reach the destination and there is a possibility that you may miss the given timeline. 

3. If you start around 1:45 P.M. then only option you have to cover the distance by only running and mostly you will miss the given timeline.

In the above example it is quite clear that whoever plans earlier reach the destination comfortably on or before time. 

Same is applicable for retirement planning. The early you plan the more easy and comfortable for you to achieve the goal. 

Now we will try to understand the affect on the investment amount required for retirement planning if we delay our retirement planning. For doing this we will try to see how much one need to invest if he plans his retirement at different age of his life. 

Here is some assumption for the calculations:- 

Retirement Age	60 Years
Life expectancy	100 Years
Inflation throughout life	8%
Expected Rate of return on investment	10%
Post retirement rate of interest	8%
Annual increase in monthly investment	10%
Current monthly expenses	10000
Current Age	25 Years

From the above data 76,647,225 INR is required as the retirement corpus. Now let’s see at different stages of life how much money you required to invest to achieve this figure and also see how much percentage (compare to lowest investment amount) it got increased if you delay. 

Age at the time of planning	Monthly Expense	Investment Amount
Current Age 25 Years	10000/-	4618 /-
Delay by 5 Years (30 Years)	14693/-	9117 /- (Increase by 97%)
Delay by 5 Years (35 Years)	21589/-	18500/- (Increase by 301%)
Delay by 5 Years (40 Years)	31722/-	39077 /- (Increase by 746%)
Delay by 5 Years (45 Years)	46610/-	87986/- (Increase by 1805%)

Now see the difference in the amount required for investment. Every passing year your required amount is getting increasing. Now think with the increased responsibility will you be able to invest that much amount? 

Start early and reach you retirement comfortably. 

I want to thank Pattabiraman sir who blogs at http://freefincal.com/ for making the wonderful calculator which I have used for getting the above data. He has created some amazing and very useful excel based calculators. 

Please download the calculator from the below link and try to find out how much investment amount you required. 

http://freefincal.com/cost-of-postponement-calculator/ 

Please do share your views.