The Right Time to Invest In a Retirement Plan is Now

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Probably no single question is on an individual’s mind like this one. From the moment the individual gets his first paycheck he must make decisions and one of those decisions is whether he needs to save money for the future.

Some of these individuals – at least the conscientious ones – end up setting aside some money for a rainy day.

Many end up postponing this for another day when they earn more, have a family and must deal with financial responsibilities.

Mention retirement planning to this group and their likely response is going to be – why do I need to plan for retirement when I have so many years before I retire?

To be sure, retirement even when it’s a distant event must be planned well in advance so that you are financially comfortably in your golden years. Living long is everyone’s dream, but outliving your finances can turn it into a nightmare.

So the answer to the question – when is the right time to invest in a retirement plan? is NOW.

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Most individuals won’t find retirement planning urgent enough until they appreciate one point – time lost in saving for retirement cannot be recovered even if you make amends later by investing more money.

Let’s understand this with an illustration involving two colleagues – Akshay and Rahul, both 25 years old,in their first jobs.

Akshay being a conscientious individual starts saving early on, setting aside Rs 1,000 every month in a savings and investment plan with a 25-year commitment.

Rahul, the carefree one, does not believe in saving money so early in his career.He takes the plunge 10 years later. However, to catch up with Akshay, he increases his monthly investment to Rs 2,000 with a 15-year commitment.

Does Rahul, the carefree one catch up with Akshay, the conscientious one?

Look at the table and you will find that 25 years later Rahul is nowhere close to Akshay.

Early bird gets the worm

Monthly Investment(Rs) of Rahul 2000
Monthly Investment(Rs) of Akshay 1000
Investment Tenure(years) of Rahul 15
Investment Tenure(years) of Akshay 25
Returns (CAGR) of Rahul 12%
Returns (CAGR) of Akshay 12%
Maturity Amount (Rs) of Rahul 1,009,152
Maturity Amount (Rs) of Akshay 1,897,635

(Returns are for illustration purpose and do not represent actual returns on an investment.)

Rahul despite doubling his monthly investment to Rs 2,000 does not catch up with Akshay who is investing only Rs 1,000. Given that they both invest in the same investment plan, there is only reason for this – Akshay’s 10-year head start.

The 10-year head start ensures that after 25 years, Akshay’s savings will be 88% higher than that of Rahul. From Rahul’s standpoint, a 10-year delay means that his savings will only be 53% of Akshay’s savings.

Clearly, there is no best time to start saving for retirement. The best time is when you start earning. Set aside some money towards retirement even if it’s insignificant. You can increase your contribution as you begin earning more.

One of the better ways to save is through a savings and investment plan designed specifically for retirement planning like the ones launched by insurance companies. Such plans have multiple options to suit investors with varying risk profiles and investment objectives.

Curated from The Right Time to Invest In a Retirement Plan is Now

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