Most people do not think about retirement as an emergency. There is always another priority – such as rent, EMIs, career advancement, raising a family etc. Therefore, they tend to put retirement off until it seems less immediate and therefore more remote.
However, the unpleasant reality is that, by the time most people reach a certain age, retirement has already started to take form. The choices you make now in terms of developing the necessary financial habits; the amounts you save; and when you allow your savings to grow will determine if your retirement is one of freedom, or anxiety and stress. With life expectancy in India now crossing 70 years and rising, many people may spend 20–30 years in retirement—often without a regular income.
Therefore, the correct question is not “do I need to plan for retirement?”, but rather “how much can I set aside for retirement at this point in my life, without giving up too much of what I am doing currently?”.
Step 1: The math of time: Why your 30s are critical
The single most important factor for you is time. With almost decades/years until you retire, your money has enough time to grow, weather out the market swings, and compound regularly. Therefore, you have the ability to begin with much smaller amounts that are easier to manage, as opposed to having to invest large sums at an older age.
A small amount of delay in your preparation for retirement can be costly. It may increase the amount of money you will need to save each month and make what should be an enjoyable experience (retirement) into one that is more stressful than it needs to be.
A 5-year delay can increase the required monthly investment by 30 – 40%, while a 10-year delay can nearly triples it — purely because compounding time is lost.
Step 2: Vision first: What does your ‘freedom’ look like?
Retirement is a personal choice and not everyone can envision themselves retiring at all, or when they will retire. Some may wish to retire to live an inexpensive lifestyle; some may be looking forward to being able to afford all comforts of their youth, and some may expect to have the ability to enjoy new adventures and opportunities and flexibility in their spending.
What does retirement look like to you? Where do you think you will live during that time? How do you think you will spend your days? Would you like to continue to live in the city, or would you prefer to move to a smaller town or rural area? Do you want to be free to travel whenever you want, or do you want to be as frugal as possible? All of these are subtle factors in determining your future costs and the savings needed for you to achieve a comfortable retirement.
In today’s terms, a basic retirement lifestyle may require ₹40,000 – ₹50,000 per month, a comfortable lifestyle ₹75,000 – ₹1 lakh, and a more premium lifestyle ₹1.5 lakh or more. These are starting points, not future values and they scale sharply with inflation.
Step 3: The inflation factor: Why Rs 50k won’t be enough
Retirement planning is often undermined by an incorrect assumption that one’s current spending habits will be identical for the next 25-30 years. That may seem like a long way off, but inflation is a slow process, working behind-the-scenes to increase costs on an ongoing basis, until what was once affordable, becomes unaffordable.
What seems affordable today; groceries, utility bills, health care, housekeepers and other daily necessities will likely have increased significantly over time. If you do not take into account the fact that these costs will rise, you may still end up with a large shortfall in your retirement savings, even after many years of saving.
Healthcare costs tend to rise even faster than general inflation, often at 8–10% annually, making medical expenses one of the largest risks to retirement planning.
Step 4: The ‘magic number’: Calculating your total corpus
After you have established an estimated number of monthly expenses you will require during retirement, it is then time to take into consideration the larger view — your total retirement corpus (the amount you need to be able to save for when you retire).
Your objective at this stage is simply to ensure that your quality of life does not have to change after you are no longer receiving a pay check from your employer. Retirements can last as many as two or even three decades so your savings must be sufficient to cover daily living expenses, unanticipated expenses, as well as increasing healthcare needs, often for a longer period than your entire working lifetime.
Withdrawing even 3–4% annually from your corpus may feel conservative, but higher withdrawal rates significantly increase the risk of running out of money in a long retirement.
Step 5: Reverse engineering: Finding your monthly SIP amount
The large sum of money that will be needed for retirement may seem daunting initially. However, it can be made much easier by breaking it down to how much money you could affordably put away each month.
Rather than viewing the end result (the total), you are able to view it from a monthly perspective as to what you would be able to put away each month.
If you begin investing in your 30s, even small amounts of money consistently invested over time can benefit from the effects of compounding and help build a significant amount of money towards your retirement goals. If you wait until later in life to begin saving for retirement, the monthly investment needed to reach your goal will increase significantly. Waiting to save for retirement can have a larger cost than many people realise.
For many mid-career professionals, this may translate to investing roughly 20–30% of monthly income toward long-term retirement goals when EPF, NPS, and mutual fund SIPs are combined.
Step 6: The 20% rule: A simple formula for success
Income-based guidelines are an easy way to start planning for retirement. The percentages based on your income will be consistent, which eliminates having to constantly think about how many dollars and cents go into your retirement savings at every stage.
Your investments grow in relation to your income over time, so there is no need to continue to make changes or recalculate what you should save. Income-based guidelines keep your retirement planning organised, simple and realistic while still keeping it affordable.
Someone earning ₹1 lakh per month and consistently investing 20%, with periodic income growth, can often build a multi-crore retirement corpus over a full working career.
Step 7: Beat inflation: Why you need equity in your 30s
The type of investments you make is equally important to the amount of money you are investing. As a younger professional, you will have the greatest opportunity in your investment career (not just financially) based on your potential for flexibility — you can remain in the stock market through both up and down markets and let your portfolio recover from short-term price volatility.
A growth-based strategy allows you to build the value of your retirement account at a rate that will keep pace with inflation and increase your purchasing power in the years ahead. Investing too conservatively early in your working life may appear to be safe, however; investing too conservatively can lead to slow growth, which creates an environment where you may want to invest aggressively later in your working life when you have fewer options and less margin for error.
Historically, equities have delivered long-term returns of 10–12%, compared to 6–7% for many fixed-income instruments—making growth assets critical for beating inflation over long horizons.
Step 8: The ‘step-up’ secret: Supercharging your SIPs
Investing for retirement is often best accomplished by making investment dollars increase when your salary (or other income) increases. It does not require big leaps – small, consistent increases will have a large impact on your retirement savings over time.
When you receive a raise, bonus, or other type of increased income, you should use this opportunity to help create financial security for your retirement, not just to improve your quality of life now. Investing money that grow at the same rate as your income feels much less limiting and very sustainable. What makes an investment plan successful is long-term consistency of effort, not necessarily being at the right place at the right time.
Over a 25 – 30 year period, the difference between a flat SIP and a stepped-up SIP can run into several crores, even if the starting amount is the same.
Step 9: The golden rule: You can’t get a loan for retirement
Many of us have major life objectives (i.e., purchasing a home, paying for our children’s education, etc.) that we feel compelled to accomplish during our working years; however, when we prioritise these types of objectives over retirement savings, we may unknowingly place ourselves at risk down the road. Unlike most objectives that we can postpone until a later date, we cannot delay retirement planning indefinitely and/or borrow money to fund it after we retire.
The key is balance, as even if it means making small, regular contributions to retirement accounts while you are going through financially difficult times, they will prove to be much stronger than delaying your retirement savings until what you perceive to be “the perfect” time.
In addition, as your life continues to evolve and change, you need to continue to review your overall retirement plan and make adjustments based on any changes in your income, responsibilities, and/or priorities. This will allow you to make course corrections early, before you experience any financial pressure.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a qualified professional before making investment decisions.