Using a retirement calculator for the first time can be a nightmarish experience. Many users have complained that the low-stress retirement calculator is low-stress before using it and high-stress after!
I would like to think much of this stress is due to a lack of understanding of how a corpus grows over time. Although investments in volatile asset classes do not compound like a fixed deposit, their growth can be represented as such. As long as we understand that the return assumed is the average considered over the period of investment, and not the one obtained each year, it should be okay.
Suppose my retirement is 25 years away and my target corpus is 15 Crore. This is not the number I should be scared of. For an average portfolio return of 10%, the monthly investment I need to make is Rs. 46,148 in the first year and increasing at 10% each year.
If I can manage to invest this much - initially and also manage the increase of 10% a year, I see no reason to be scared or worried. If I cannot, then I will need to review the inputs. Remember, any calculator is only as good as its inputs.
This the standard compounding graph for the scenario mentioned. Notice how small the total investment is, compared to the corpus achieved. So much of the corpus is via the growth of the initial investments.
Now for the key graph. This is the percentage of the target corpus (15 Cr) achieved vs the no of years invested.
Notice that it takes 20 out of 25 years (80%) to achieve 50% of the target corpus. The remaining 50% (7.5 Cr) comes in the next 5 years!!
So the key is to
- start investing early
- invest as much as possible
- invest with a risk management strategy
- invest without worrying about the target
If we invest with discipline and a plan, we will get there. Use the low-stress retirement calculator without fear or stress.
Moral: Growth of a corpus is a non-linear process. It cannot be imagined. So do not try to and get stressed after using a retirement calculator!
Related post: How people react to a retirement planning calculation
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