Few days back, I was analyzing Ameriprise India’s
second edition report - Trends and insights into the financial goals of Indian
consumers. ‘140 per cent increase in respondents rating retirement as a key
goal’, key change reported in the report.
In this blog, I have explained the importance of early
savings and investment with a simple story. Why savvy financial planning at
early stage? Just! Because of the eight’s wonder ‘compound interest ’.
Sincere money allocation with regular investment has
an ability to lift your boats without tide. Before making such decisions always
take help from financial planner and adviser.
Recently, my friend Aamer celebrated his first job
party at Pizza Hut. Decent salary! Decent company. Thanks! Aamer for the Pizza
party.
Before we start our main course plz have a pen and
paper ready, so that you can note down few numbers, might you feel little
difficulty in number crunching. In this research all calculations are actual.
Aamer’s salary is 25000/- per month. And his current
monthly expenditure is 15000/-. Let’s assume that he decides to retire at the
age 60 (Aamer’s current age 25).
Everyone knows that prices are sky rocketing. At the
age of 60 Aamer’s monthly expense would be 1.6 Lakh, if we assume inflation to
be at 7% (we usually put it little high for safety in case it goes to much
high).
If let’s say his survival age is 80. He must have
corpus of 3.24 crore at the age of 60 for his golden retirement period (If we
take inflation adjust return 1.86 %).
Real story starts now.
Case 1: At the age of 25, he starts savings of 2500/-
only per month. At the age of 60, his total corpus would be A1, A2 and A3 (See
table 1) if he invests at 8%, 10% and 14% rate of return respectively.
Case 2: If he doesn’t bother about his savings at
early age, and starts savings at the age of 35 with 5% of increment in savings
compared with age of 25, with 4073/- every month (Because his salary has been
increased and he is able to save more at the age of 35 than 25). His corpus at
the age of 60 would be B1, B2 and B3 (See table 1) if he invests at 8%, 10% and
14% rate of return respectively.
Case 3: At the age of 45 he thinks, it’s quite late to
savings for retirement period. He starts investing 10565/- per month (increase
of 10% from savings of age 35). His corpus at the age of 60 would be C1 and C2
(See table 1), if he invests at 8% and 10% rate of return. Here we eliminate
14% rate of return because, at this stage it’s not appropriate to chase high
return with high risk.
Case 4: At the age of 55, Ahh! I need to save for my
retirement to have same lifestyle. He saves 65415/- per month (increase of 20%
from savings of age 45). His corpus at the age of 60 would be D1 and D2 (See
table 1), if he invests at 8% and 10% rate of return.
Initially we have calculated, required corpus of 3.24
crore at the age of 60 to fund his retirement lifestyle. None of the figure
from the table 1 came near to 3.24 crore.
How would he survive his retirement? It’s actually
simple, just by increase of 1125/- per month. If at the age of 25 he starts
saving 3625/- (2500 + 1125) per month and if he chooses to invest at 14% rate
of return.
These figures might confuse you a little, but there is
nothing written in air. All figures are actual, and calculated by financial
calculator. Most of us think, we have decent salary and having an international
bank account. Savings bank accounts are not sufficient at all. I bet that. I
haven’t shown comparisons with banks interest rates, otherwise shock could be a
very very high to my friend.
Moral of the story is, when it
comes about money,
you have a choice to avoid risk,
by just paying little premium - in term of insurance or to Financial planner.
There are enough options available in India to avoid personal financial crunch.
You just need is to bet on time.
in Lakh
|
|||||
A
|
B
|
C
|
D
|
||
8%
|
1
|
53.9
|
37.2
|
35.8
|
48.2
|
10%
|
2
|
85.6
|
50.6
|
42.4
|
50.4
|
14%
|
3
|
223.5
|
95.4
|
-
|
-
|
Table 1
