I started investing Late, Can I Catch Up?

I am often asked this question. The catching up here refers to being able to create an adequate retirement corpus. The answer depends on the age of the person. For someone in the 30s (even late 30s), I think it is quite possible if they put their head down and invest enough for the next 15 years. This is part two of the Ugly Truth: How much should I invest for retirement?

|amp|

Announcement: Gamechanger paperback is still available at a 25% discount for Rs. 149 only! Grab it or gift it to a young earner

Fifteen years is a lifetime when it comes to investing and with some luck and discipline, even a 40-year-old can make enough corpus to retire by 55 or so. Even by age 40, an exposure to 60% equity need not be risky. So it is not late at all. Only above age 45, the risk becomes too high even if the person has the appetite for it.

|amp|

Let me punch in some rosy numbers for this post.

Age: 35

Current approximate monthly expenses (annual by 12) : 40,000

No of years you expect to work: 20 (retirement by age 55)

Inflation expectation: 7%

Life expectancy: age 85 (30 years in retirement)

Return expected before retirement from entire portfolio: 10% (after tax)

Return expected after retirement from entire portfolio: 9% (after tax: a tough ask, but please play along)

The rate at which monthly investment will increase each year from now until age 55: 10% (this is a big ask, may seem rosy now, but will get tough in a few year, but again please play along).

The amount at hand for retirement so far: 5 Lakh (this is not unreasonable for someone in 20-30% tax slab who has been work for at least 7-8 years now. The EPF corpus should be close to this.)

Rate of return on the above amount in future: 8%

The monthly investment required is 68% of monthly expenses (40,000) or about 27,000 a month. This includes the mandatory EPF contribution. You can consider a portfolio of 60% in equity and 40% in EPF. Possible or not?

Now, for the same set of assumptions,

  • expenses increasing each year by 7%
  • retirement at 55
  • death by 85
  • post-tax portfolio return pre-retirement: 10%
  • post-tax portfolio return post-retirement: 9%
  • Annual increase in monthly investment: 10%
  • 5L growing at 8% each year

If the 35-year-old delays investing by,

  • 1Y, the monthly investment required = 73% of the monthly expenses by age 36
  • 2Y, the monthly investment required = 80% of the monthly expenses by age 37
  • 3Y, the monthly investment required = 87% of the monthly expenses by age 38
  • 4Y, the monthly investment required = 95% of the monthly expenses by age 39
  • ….

Retirement investing delay - I started investing Late, Can I Catch Up?

You can use this “Can I catch up?” calculator to punch in your own numbers.

Bottom line: Do not think about the past and regret. Invest as much as you can and invest right with hope, discipline and patience. If you want some motivation, here is a list of all stupid mistakes that I made until I started earning at age 32 (common for academics): The Financial Arrow of Time.

 

|amp|

Announcement: Gamechanger paperback is still available at a 25% discount for Rs. 149 only! Grab it or gift it to a young earner


Use this form to ask Questions or reg. the robo template ONLY (For comments/opinions, use the form at the bottom)

And I will respond to them in the next few days. I welcome tough questions. Please do not ask for investment advice. Before asking, please search the site if the issue has already been discussed. Thank you.  PLEASE DO NOT POST COMMENTS WITH THIS FORM it is for questions only.

GameChanger– Forget Startups, Join Corporate & Live The Rich Life You Want

My second book, Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantco-authored with Pranav Surya is now available at Amazon as paperback (₹ 199) and Kindle (free in unlimited or ₹ 99 – you could read with their free app on PC/tablet/mobile, no Kindle necessary).

It is a book that tells you how to travel anywhere on a budget (eg. to Europe at 50% lower costs) and specific investment advice for young earners.

GameChanger review 4 650x477 - I started investing Late, Can I Catch Up?both covers 650x467 - I started investing Late, Can I Catch Up?

The ultimate guide to travel by Pranav Surya is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

You can Be Rich Too with Goal-Based Investing 

My first book with PV Subramanyam helps you ask the risk questions about money, seek simple solutions and find your own personalised answers with nine online calculator modules.

mini Final cover - I started investing Late, Can I Catch Up?

You can be rich too Review1 650x254 - I started investing Late, Can I Catch Up?

The book is available at:

Amazon Hardcover Rs. 271. 32% OFF

Infibeam Now just Rs. 270  32% OFF. If you use a mobikwik wallet, and purchase via infibeam, you can get up to 100% cashback!!

Flipkart Rs. 279. 30% off

Kindle at Amazon.in (Rs.271) Read with free app

Google PlayRs. 271 Read on your PC/Tablet/Mobile

Now in Hindi!

Hindi You can be rich too - I started investing Late, Can I Catch Up?

Order the Hindi version via this link


Also published on Medium.

Create a "from start to finish" financial plan with this free robo advisory software template


Free Apps for your Android Phone

Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

7 thoughts on “I started investing Late, Can I Catch Up?

  1. Dear Pattuji,

    “post-tax” portfolio return pre-retirement: 10%..dont you think this is a bit Optimistic?
    That means if equity gives you 11%/12% than debt has to give 8.5%/7% post tax! (for 60E:40D mix)

    With a realistic returns of 6% post tax for debt…Equity returns will have to be considered as almost 12.75% !

    The only way is to assume lower returns and increase investment..(easier said than done though).

    1. Yea and it mentioned in the post. Pl do not read too much into an illustration. You can use the sheet and use the nos you are comfortable with.

Do let us know what you think about the article