Procrastination may jeopardise your retirement planning.

It is always said, ‘better late than never.’ While it is never too late to start saving for retirement, putting it off for too long can take a big bite out of your retirement nest egg.

Saving systematically as soon as you start earning makes it easier to reach your retirement goal. Inculcating this habit of savings also helps you to achieve other goals of your life as well.
Survey shows that most individuals will need a retirement income equivalent to @ 70% - 80% of their pre-retirement income in order to maintain their current standard of living during their years of retirement. To achieve this, one must start to save at the first opportunity. By starting early rather than delaying your savings for a few more years, you can considerably reduce the amount you save every month to reach your retirement goal. Delay in retirement savings costs more in the long run.

For example:
Raja and Rana, both aged 20, start their first job where they receive the same salary. The retirement age is 60 years. Raja decides to start saving Rs. 1000 from each month's salary. Rana, however, wants to wait until he is older before starting to save. He thinks it is long enough for the retirement and can start saving for it later in his life after 10 years. Refer to the table below:

With just 10 years of gap in starting the savings, a difference of Rs. 1,20,000/- ( Rs. 1000/- p.m x 12 months x 10 years), the difference in the corpus at 60 years their age is a whopping Rs. 168.61 lakhs (223.54 – 54.93) considering 14% returns. This is the POWER OF COMPOUNDING. In other words the cost of procrastination to Rana is Rs. One Crore sixty eight lakhs. !!!

If at his age 30, Rana wants to catch up with Raja‘s retirement corpus of Rs. 223.54 lakhs, he will have to save Rs. 4000/- p.m. for the next 30 years.

Another scenario is:

Expecting a yearly growth in the salary, Raja decides to increase the savings every year say by 10% since start (Rs. 1000/- p.m. for 1^st year, 1100/- p.m. for 2^nd year …and so on). With this arrangement, his corpus at 14% average returns will grow to an astounding figure of Rs. 431 lakhs instead of 223.54 lakhs.

These are easily achievable figures. Sensex started 100 points in 1979 and is hovering at 17000 levels now in 30 years. This is @19% average yearly returns. We have assumed 14 % returns on a conservative side.

How much would be sufficient and how much is needed to save every month?

A good financial planner will be able to help you determine the amount you need to save in order to maintain your pre-retirement standard of living or if you need to improve your standard of living. Understandably, other factors such inflation and changes in income tax rates during pre-retirement and post-retirement stage may alter the projected amount. Also while planning for your retirement corpus, you also need to take care of your other important financial goals of your life such as children’s education, their marriage, contingency fund requirement, holiday planning, estate planning, insurance requirement, etc. A proper financial plan will help you evaluate and give a complete roadmap.

However, having an idea of what you need for your future retirement makes it easier to determine if you are saving enough.

If the limitations placed on the amount you save in your employer-sponsored pension plans, EPF, etc. are not sufficient to meet your goals, talk to your financial planner about other savings vehicles - such as regular savings, fixed deposits, bonds, debentures, stocks or mutual funds that would better suit your financial profile.

Even if you are not able to save on a monthly basis, it may be still very much possible to achieve your requirements. This can be planned for you with the help of your financial planner with resources available with you.

Conclusion
Early financial planning helps to ensure a financially secure retirement. Explore all the options that are available and choose the ones that are right for you. Be sure to inform your financial planner of all your other expenses so that he or she can help you to make realistic plans. Remember, if you plan to start later, that ‘later’ may never arrive.

And if you are still not convinced that you need to start saving now, think again…till you get convinced because, as it is said ‘better late than never’.

The author of this article is Atul Mishra, a Certified Financial Planner and Chartered Wealth Manager and can be reached at atulnmishra@gmail.com