'Start young or else....'

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: The need to start planning at the earliest could not be more emphasised. An early start is essential for optimising your returns over time. In fact, the earlier you begin, the better it is for you. Forget that wise adage and you may end your retirement years in financial misery.

The factor that makes all the difference between an early-starter and a late-beginner is, to use a classical term, “time value of money”. To put it simply, money will earn you more money provided you have time on your side. This becomes possible because of what is known as compounding.

Imagine a child - may be, you could think of a 7-year-old - whose parents have taken care to initiate a long-term wealth creation programme for him. He has a great start ahead of others in his age-group who is not so lucky.

The child becomes a teen-ager and then, as a young adult, takes that wealth creation drive to its next logical level, managing it himself with the help of a financial planner.

That does not sound utopian in this day and age, when parents have become extremely aware of their responsibilities. Compounding works wonders for people who start early. In fact, as I keep on telling investors in my capacity as a financial planner, one needs to be an early bird in these matters, especially because there is retirement to take care of.

The one mistake that investors make (when planning for retirement) is that they forget to factor in inflation. The latter can have a ruinous impact on your savings if you are not guarded enough. Indeed, we in India are passing through a phase marked by high inflation right now.

Mind you, you need plenty of planning to make your money last in retirement. As you are no doubt aware, people are living longer these days. In fact, not more than a small section of people expect their retirement to last less than 10 years. Given this situation, you need to work out how much you will need in retirement. A typical retiree can need as much as 75% of his or her pre-retirement income in order to lead a comfortable life.

What do you need to do in such a scenario? Well, you must ensure that your money lasts - and lasts as long as you do! You may well outlive your resources. And that may not be a wonderful thing if you have not saved enough or if your money does not grow at pace with inflation. A rapid withdrawal strategy may also be ruinous.

Speaking of withdrawal, the lay individual may take out 5-10% of his assets each year in retirement and not outlive his resources. Withdraw more than that, and chances are you may go bankrupt in retirement.