I started investing Late, Can I Catch Up?

Published: April 25, 2017 at 10:33 am

Last Updated on

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?

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.

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
  • ….

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.

 

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.

[contact-form][contact-field label=”Name” type=”name” required=”1″][contact-field label=”Email” type=”email” required=”1″][contact-field label=”Ask your question (Got an opinion or comment, use comment box at the bottom of the page. DO NOT post them here)” type=”textarea” required=”1″][/contact-form]

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.

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.

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!

Order the Hindi version via this link

Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This 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 Rs 199 (instant download)
Free android apps