An uncle passed away last week. He was 98 years old. He retired from the Indian Air Force at the age of 57 and lived for four decades after that. After his daughter called and informed me (he resided in another city), one thought flashed across my mind; that saving for one’s retirement must take predominance over every other goal.
Of course, the sooner one starts, the better. Take the example of a person investing Rs 10,000 per month at the age of 30. Assuming he invests every month till the age of 60 and his investments earn a return of 12% p.a., his corpus will swell to Rs 3.53 crores by the time he retires. Had he invested the same, at the same return, from the age of 40 onwards, he would have had to be content with just Rs 99.91 lakh.
If you have not started saving for retirement, start NOW. If somehow, you just cannot wrap your mind around it, Morningstar’s experts share suggestions on how to get started.
- Pay down debt
- David Blanchette, Head of Retirement Research
If you aren't motivated to save for retirement, focus on paying down debt, like credit cards, student loans, home loans, personal loans and auto loans. Retirement is not always easy to save for because it can be so far off in the future. Paying down debt might actually make more sense than saving for retirement, depending on the interest rate of the loan and the return on your investments. So, if retirement doesn't do it for you, pick something else that does. Hopefully, when you get in the groove of paying off your debts, you can pivot and save some for retirement.
- Visualize the future
- Sarah Newcomb, Director of Behavioural Science
It is human nature to care more about immediate issues than something that feels far away, like retirement. By the time people get around to caring about retirement, they have already wasted precious time.
Newcomb recommends using visualization strategies. Think about what your life in retirement looks like. Don’t keep it vague. Force detail into the picture. What will your home look like? How do you see your travel plans? What sort of social life do you envisage? Doing this will make the far-away future feel closer. And provoke you into action.
- You vision is negotiable
- David Blanchette, Head of Retirement Research
Don’t let your visualization of the future freeze you into inaction. It is not written in stone.
Does your villa in Goa have to be 3,000 sq ft? Are you certain of living in an expensive city like Mumbai? If yes, would you be open to selling your 3-bedroom apartment (now that the kids have homes of their own) and willing to relocate to a 1-bedroom?
Know yourself and use that knowledge to get a clear sense of what life in retirement might cost you. Then do some research. How much does that villa cost? Saving requires sacrifice, and sacrifice can be easier when you know what you're really saving for. What will you trade today (that is, live without) to get the retirement you want?
Realise that saving for retirement isn't fun or easy, but that you might be able to trick yourself into doing it - like hiding vegetables in a dish so you don't taste them.
How you think about it can potentially make a big difference, too. Try to fall in love with your vision of retirement and it will spur you on to better decisions. Your future self (and your spouse) will thank you!
- Have a flexible approach
- Steve Wendel, Head of Behavioural Science
The key is for individuals to figure out for themselves what they’ll need, and work on any shortfalls with a multipronged approach.
If you are fretting that you won’t be your dream goal, you will think in extremes. Rather than drastically cutting living standards or “working forever,” as many exasperated workers tend to imagine, little changes taken together can make a big impact.
So you may think about delaying retirement to age 67, scale back a bit on lifestyle expectations, and increase your savings currently. Attack the issue from multiple angles.
- Pay attention to the negatives
- David Blanchette, Head of Retirement Research
Those with insufficient savings tend to think that the solution is to retire later. But that does not always translate into reality and is not the life raft it appears to be. Neither is it a straightforward calculation because it's difficult to predict when a specific person will actually retire.
Retirement often happens earlier than people expect, and this can cause havoc with your savings plan. In a retirement study done last year, we noted that savers who think they have a 90%+ chance at meeting their goals might actually have more like a 65% probability.
Which means that the only solution that guarantees success is significantly increasing your savings. That brings us back to initial point made above. Start NOW.
If you need some more guidance, P V Subramanyam tackles this subject in his book Retire Rich.
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