Home / Opinion / Got a late start? Run. Run. Run

Imagine this. Your kid in class eight comes to you in the month of January and says that he’s unprepared for the final exams that are now just three months away. He’s sorry he faffed around all year, but well, it’s too late now, isn’t it? What’s your second reaction? The first is mostly to tell him how irresponsible he is and how, at his age, you were such a paragon of virtue and were studying by night and working by day (all lies, of course, but we adults do pretend to be perfect). Next lungful of breath is expelled in telling him to use the next three months to study night and day and do the best he can. Cut out the movies, the parties, the games, the online chatting and games, and get to it. You don’t find yourself telling him to drop a year and take no action since it is already too late.

Remember this each time you catch yourself saying: it’s too late to get my financial life together. The second most popular excuse I hear for not having a financial plan in place is this one—I’ve left it too late, now what’s the point. The first, of course, is this: where is the money to save and make a plan? Both are statements that are looking at the problem rather than a solution. Let’s write the problem statement: I’m in my mid-40s or mid-50s and I have very little to show for the past 20-25 years of work in terms of savings. My kids’ higher education is near and so is retirement, and I’m getting panic attacks about the future.

I’m going to open up the “too late" bit. The panic of not having enough is more about not having a plan, rather than actually having nothing. As a first step, get pen to paper, or an Excel sheet if you know how to use one, and start adding up what you own. Fixed deposits, bonds, insurance policies, flat, land, gold, funds, stocks, money in bank deposits, Public Provident Fund, Employees’ Provident Fund—count everything. Some of this may be maturing in the future, but at least it is yours. Count it all. Most people who do this exercise look up with a wide grin—this is more than I thought I had.

Next, figure out what your key worry is—putting your kid through a higher education course abroad or your own retirement, or both. Let’s target retirement first. The thumb rule I use for enough retirement money is the ‘save your age’ formula. Save 20% of your post-tax income in your 20s, 30% in your 30s, 40% in your 40s and half in your 50s. This rule of thumb is what its name says: it is an approximation and not an exact formula, and this is based on certain assumptions.

The first is that your post retirement spends will be linked to what you spend now. The second assumption is that you have the money for the children’s education and marriage—even if you don’t, get your retirement money in place first. The third assumption is that you’ll retire at 60, but will continue to earn something in current rupees at least till age 70. The fourth assumption is that you will not finish off the retirement corpus in your lifetime, but will live off the interest or dividend of the corpus. The last assumption is an average annual return of 11%. If you think you can do only 8%, bump up your savings target.

Now for the good news: most people get an income boost by the time they hit their mid-40s. The 50s are usually the peak of a career and are the highest earning years. The kids are usually independent and I know urban mass affluent Indians who save 60-70% of their incomes in their 50s. Use such friends as role models, and ramp up your savings to match these numbers if you feel your money looks a bit thin for the future. Make sure you cut out the lifestyle costs and focus on getting to your savings target.

The luxury of savings being a leftover after expense was left behind in your 30s. In your 40s and 50s, target your savings and salt away every bonus, increment and windfall in your retirement corpus. It is actually not too late to make amends. Get a plan in place. You can read the money box stories (http://bit.ly/1SwB3Io) for a hands-free approach to a sensible money plan.

Once this is in place, your next step is to get a second career off the ground. The 70s is the new 50s in India, and it is brain numbing to sit at home at 60 when you’re used to setting out each day to work. Begin thinking of a post retirement occupation that not only is close to your heart but will also give you an income. Try and earn till as late in life you can—not only does it give you more money at a time when your responsibilities are largely over, it also keeps the brain from rusting.

Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, Yale World Fellow 2011 and on the board of FPSB India. She can be reached at expenseaccount@livemint.com

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