Pushing 30 but retirement seems far away? Think again

In the race for well-paid jobs and constant improvement of skill sets, it’s definitely not easy being a 20-something in today’s economy. As a result, savings is one thing that definitely takes a back seat when it comes to balancing a lifestyle and future funds.

When the roller-coaster ride as a young executive begins it is hard to imagine a life when the birthday candles cross the golden hurdle of 50. Seems like a distant reality, doesn't it?

But, how much ever far away it may seem, the fact that it is a reality is often ignored. Though it may take some time to enforce financial discipline, it is definitely worth a thought. Listed below are our three cents for that much-needed nudge.

Of Time and Timing

Let's talk about two executives who start setting aside the same amount for exactly 10 years. The only difference: One starts at 25 while the other at the age of 35. With the amount and investing period being the same, we would hope that both accumulate a similar corpus.

But here's the catch - the power of compound interest. The person who starts early is poised to create a substantially larger fund at the age of 60.

Sample this. A starts investing Rs. 50,000 annually at the age of 25 and stops after 10 years due to constraints. At a return of 10% p.a., A accumulates more than Rs. 8 lakh and leaves the money to earn interest compounded annually thereafter. At the same annual rate of return, he would have more than Rs 90 lakh by the time he is 60. B, on the other hand, begins the same investment at the same rate but only at the age of 35. Even after continuing for the next 25 years until turning 60, B would accumulate only a little over Rs. 54 lakh. See what we mean?

One of the biggest financial advantages out there is something anyone can access by opening a simple retirement account: compound interest. Even under Rs 30,000 a year will compound to many times that amount by the time you retire.

One of the good plans available in this category is the HDFC Life Click 2 Retire plan. Given the rising cost of living, increased life expectancy and inflation, this product helps you plan investments either by the amount you want at the end of the term or the amount you are comfortable investing every year right now. Take a look at this link for a clearer idea.

Expenses will only Increase with Age

Like your professional degree, home loan and education plan for children, retirement planning is also an expense. It is investment for comfortable expenditure later on.

Most young executives do not save for retirement because they feel it can happen later. But, rest assured, there is no later. Ask any friend in a metro city with a kid in school and daily household expenses to get the real picture. With family taking a front seat in the 30s, setting aside adequate money become more and more difficult.

Apart from investments, it is always advisable to set aside 3-6 months of monthly expenses (including EMIs) in an emergency fund that should be taken seriously. A new car should never be an excuse to dip in it.

Match savings to income increase

The next bonus or hike in salary is often earmarked for the next vacation or other such big-ticket buys. Instead, try using it for clearing student debts or home loans. We have to keep in mind that there are too many external factors like rent increase and petrol prices that may take a toll on expenses without adequate notice.

Forced saving via employee provident fund is the fall back retirement option for many. Though the small contribution can bloat into a big sum over the longer term, it should just be a stepping stone. Moreover, those who are self employed or in firms that do not have a mature salary structure in place, there is hardly any cushion. Self discipline is the only way out.

It is important to maintain the retirement savings rate at 10% of your income so that you don't fall short later. An annual bonus or tax refund can also be good boosters for financial planning.

It is worth noting that price of a product has been largely replaced by EMI in our everyday lives. There's a loan for everything - a home, travel, car or education. No bank, however , is going to lend you for your retirement