It is not without reason that financial experts advise people to start saving money as early as possible. In fact, starting early has huge benefits even if the amount being saved is small. By doing so you can even generate a bigger corpus for your retirement than that accumulated by your father.
However, to generate a big corpus, you need to invest in various financial instruments rather than just keeping the money in your bank account.
Suppose, one day you (age 20) and your father (age 45) decided to save money for retirement. Both of you simultaneously started investing towards that particular goal, assuming the retirement age being 60. You both invested your money in mutual funds through the SIP mode for the remaining years of your retirement. Assuming that the investment was made in the same scheme, both of you were able to earn a return of 15% till you attained the retirement age of 60.
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Now, let’s understand this with the following example:
Case 1: Father’s retirement at the age of 60
Monthly investment: Rs 20000
Time period for retirement: 15 years
Assumed rate of return: 15%
Total corpus invested: Rs 36 lakh
Retirement corpus: Rs 1.35 crore (approximately)
Case 2: Child’s retirement at the age of 60
Monthly investment: Rs 2000 only
Time period for retirement: 40 years
Assumed rate of return: 15%
Total corpus invested: Rs 9.6 lakh
Retirement corpus: Rs 6 crore (approximately)
Even though your father invested Rs 20000 per month, which is 10 times more than your monthly savings per month, then also he was not able to save that much corpus at the time of retirement. It shows that you made a total gain of Rs 4.65 crore as compared to your father’s retirement corpus.
It is also observed that your father invested approximately 3.5 times more than what you invested in building the corpus for the retirement goal. Even though he wasn’t able to make a huge corpus out of that investment.
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However, many things were kept constant in the calculation. One must take the help of a financial adviser before making any investment. However, it is for sure that the early you start, the more corpus you will generate even though you have a lesser amount to save in your early years of making investments. If you haven’t still started, go ahead and start saving for your retirement goal.