At 40 am I too late to start planning for retirement?

Published: April 14, 2022 at 6:00 am

A reader writes, “I have now been reading your articles on the importance of asset allocation for a few months now. The impact of inflation is scary! I have no equity holdings in my portfolio and have never planned for retirement in a systematic way. Is there any hope for me or is it too late?”

To understand what the reader means by scary inflation see: Inflation has reduced Rs. one lakh to just Rs. 6000 in 40 years! Now to answer his question, “is it too late?”

At age 40 with a good 15 years* away from retirement, it is late. Whether it is too late or not depends on how quickly you accept and implement the following steps.  *We cannot expect to work until age 60. See How to prepare for the “new normal” in retirement planning.

  1.  You need professional help! Do consider working with one of the SEBI registered fee-only advisors on our list. Many of our readers are working with them and have given excellent feedback: 685 investors rate their experience with SEBI registered fee-only advisors (currently more than 1000 of our community are working with such advisors). Note: There is no monetary gain involved for freefincal from this recommendation.
  2. If you would like to know what to expect from such an advisor, see: How a fee-only financial planner helped me. US/Canada NRIs can find an Hourly-Fee Financial Planner on
  3. The fee-only advisor has no conflict of interest (will not sell products for which she gets commissions) and will advise on your asset allocation: Do you need equity investments at this stage? If yes, how much? etc.
  4. The key is to trust them and implement their advice immediately.

While the above will take care of the major part of the problem, we recommend the following steps.

  1. Take a good hard look at your lifestyle along with your partner and list your current expenses that will continue in retirement. Let us call this X. 
  2. Try to reduce some expenses or at the very least, do not add more want-based expenses and certainly not any new loans.
  3. Your goal from this point on should be to invest as much as possible for retirement after accounting for your children’s needs.
  4. If X = Rs. 40,000 then your total investment for retirement (including EPF, NPS mandatory deductions) should be at least Rs. 40,000 preferably (much) more!
  5. If we assume your current fixed income instruments grow as is, the asset allocation recommended by the freefincal robo advisory template for future investments is shown below.

    Pre-retirement equity and fixed income allocation as a function of age suggested by the freefincal robo advisory template
    Pre-retirement equity and fixed income allocation as a function of age as suggested by the freefincal robo advisory template.
  6. Although it would seem like 60% of what you can invest each month for retirement should go to equity, only a small portion of your networth will be invested in equity.
  7. If this is hard for you to accept or if you cannot manage to invest Rs. X per month (including EPF contributions) then you can start slow, but not too slow! Please get used to it over about 12 months, not more.
  8. Do not rush to invest Rs. 1.5 lakhs in PPF each year! Also see: PPF will not make us crorepatis! We need to take risks for that! That is, you need to get over your fascination with tax-free instruments, tax-saving instruments and high rate of interest instruments.
  9. Try to increase your income using your skill set! See Passive Income Template: Steps to build a lifelong income! You certainly have enough time to do this from age 40 to age 55.

Remember the goal is to fill the glass as much as possible. An all (full glass) or nothing (empty glass) attitude is harmful. There is no room for regret in life and investing. What is done is done. What must be done, must be done swiftly.

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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