Now or never: Start investing for those grey years

Have a long-term outlook | Timing investment is logically impossible because the best entry and exit opportunities are known only in hindsight. No one can predict market movements with certainty. Therefore, it is important to allow your investments to compound over a long term.

S Vijaykrishnan

In your 40s, you are most likely to be at the peak of your career. You may already have achieved some of your major life goals - buying a house, a car, etc. Climbing the ladder would also have afforded you most of the creature comforts defining a well-to-do lifestyle. Yet, with retirement just a couple of decades or less away, have you planned for your retirement? If not, the time is now.

Age gracefully with timely investments

Assuming you are 40 years old now, you have 20 years to retire. However, the amount you invest today should also take into account your post-retirement lifestyle; considering you have a lifespan of 80 years. It is also important to start early. Let us take the following example: if you needed a corpus of Rs 1 crore by age 60, you will have to save more per month, if you started investing at age 40, as against starting at age 30. It is also essential that you cut down on loans — credit cards and personal loans —and unnecessary expenses as a start to planning for retirement.

Sort out short-term goals

Retirement planning is a separate goal, vis-à-vis short-term aims such as children’s higher education and marriage. Taking a loan or selling physical assets such as land/ property are ways out, yet these might prove costly and difficult, when you intend to begin planning for your retirement. Assuming that these goals are 7-10 years away, it is essential to start investing systematically to raise a sizeable corpus. For instance, if you need the funds within a couple of years, you could invest in a liquid fund or short-term debt fund. If you have more time to meet your needs, you could invest 60-70 percent of your funds in equities (directly and/or through mutual funds) and the rest in a debt mutual fund.

Retirement: A balanced approach

As you approach retirement, your investment pattern shifts in favour of stability and investments that can generate monthly income. You could look to progressively adjust equity exposure to 20 percent of your portfolio by the time you turn 60, so that your corpus stays unaffected by the volatility in the markets. Depending on the corpus you require you should systematically transfer your holdings in equity to debt instruments to eliminate risk. Moreover, investing in avenues such as the employee pension scheme (EPS) will also back up your corpus. Another aspect to consider is inflation. Increasing your investment in line with the rise in your income will help you beat any rise in prices.

“Retirement planning involves creating an egg nest for a time when you lack a steady source of income. The aim now is not solely to create wealth, but to ensure both safety and growth. While equities offer significant returns over a longer time horizon, it is also necessary to consider that the markets are unpredictable. That said, traditional options such as fixed deposits, small savings schemes, etc, won’t be enough to build a retirement corpus,” says Gaurav Dua, Head – Research, Sharekhan.

Insure yourself well

Insurance and healthcare are two aspects that are misconceived as you plan your investment journey. With insurance, the ideal way is to invest in pure term life policies that will protect your near and dear ones in your absence. Similarly, expenses on health could put a large hole in your corpus, when you least expect it. While estimates of ideal amount of health insurance vary, ensure that it covers most critical ailments and is a family floater policy covering all your dependents.

It’s one thing to live out your grey years. However, to live it in style, start investing now. It’s now or never.

(The author is Editor, Sharekhan)