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Retire at your OWN Risk

It was a typical Saturday morning as I sat on my computer going through my finance numbers, a ritual I have been following every week for the last couple of years now. Yes, I know I should be spending my weekend doing other interesting things, but this is what I enjoy doing.

Anyways, back to the story, I was looking at my current financial assets and like a bolt in the blue, a question came in to my head. How much would I require at the age of retirement to sustain the household? Like the majority of us, the first thing I did was I googled “Retirement Calculator” and a dozen of options came up. I tried a couple of calculators and quickly came to realize that they were too simplistic to be real i.e. most of the calculators did not cover majority of the variables and/or the assumptions were flawed.

So, I decided to build a calculator of my own using excel. I entered the numbers and was getting excited in anticipation of the results. What followed was a shock, I found that based on my current savings and planned investments, I will run out of all my money in 6 years. That was enough to get me in to action to build a plan and I am happy to report, that I am back on track now.
The sad reality however is that most of us start planning for retirement just a couple of years before the event, which can be devastating as you may run out of all your money in less than a decade. In an online survey conducted by economictimes.com last year, more than 24% of the 2,578 respondents said they were saving less than 5% of their income for retirement. Another 25% are putting away 5-10% of their income for their sunset years. It is unlikely this will be enough to sustain their current lifestyles when they stop working.

A delay in planning your retirement may well be the most costly decision of your life for the following reasons:

  • Time is against you i.e. even if you decide to start saving for retirement 10 years before the event, you would have lost the returns of compounding a concept in which when money is left to earn interest long-term, can grow exponentially because interest earns interest.
  • At a later stage, your equity exposure will be low and is also advisable so, even if you decide to invest more the overall returns will just about beat inflation and that is if you are lucky.
  • Your choices are limited i.e. you can either extend your retirement age or you can cut down on your standard of living, the latter is very difficult to do.

If the picture is indeed as grim as it is painted out to be the question is, why do we fail to plan for retirement in our younger years? There could be a range of answers including the innate human need for instant gratification however, I feel it is the lack of awareness and focus on goals that require long term commitment.
So what does one do? The least you can do is to be clear on the following at the earliest
1.Your planned retirement age.
2.The amount of money you need when you retire.

If you are good at excel the answer to the second question can be arrived easily, for others, the basic retirement calculators out there are not a bad place to start. So go ahead and take the first step towards planning for your retirement, time does not wait for anyone so better late than never!

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