It is not just about "Retirement", it is about "Financial Freedom"

I know it sounds laughable to start thinking about the end of your working life and old age when you have just started working.  But if you make smart money decisions today, you will be able to live the lifestyle you want, no matter what age you are.

What today's youth does not realize is that by starting early (investing for retirement), he/she has a huge advantage, as their money gets more time to grow.  The more you delay, the more you have to save per month. As your age increases and you start a family, it is quite likely that you will get caught up with buying a home, buying a car, raising a family, going for vacations and doing all the things that make living life rewarding. These goals then take precedence over retirement planning.

You should also take into consideration that the concept of working until the age of 60 is becoming a thing of the past. Companies are going thru downsizing, mergers and acquisitions, shut down etc which makes the potential of job loss in today's economy very real. Finding a new job can be tough, and for 50 years old it is going to even more difficult.  Many will have to finance a retirement that is longer than the number of years they work. Therefore, it is even more important to safeguard ourselves against running out of money later in life. Most people I have seen, the savings for retirement starts only when they are near the end of their working life, which in many cases might me too late. So, you need to start today, probably now.

Time Matters:

Einstein described Compounding as the 8th wonder of the world. He said, "He who understands it, earns it...he doesn't...pays it". 

Thanks to the power of compounding, time is incredibly important in investing. If you want to accumulate wealth with ease and take advantage of the magic of compound interest, it is important to start early and be consistent. As you can see from the example below,  Mr.X started investing 10 years before Y... as a result Mr.X's corpus is approx 2.5 times more than Mr.Y.

The more you invest and earlier you start, the more time your savings will have the potential to grow in value.  As you see from the example below, both Mr.X and Mr Y started at the same age, but Mr X invested more per month...making approx 2 times more corpus. Invest young and the power of compound interest will make you rich.

Asset Allocation Matters:

Most investors keep their retirement funds in conservative instruments like Fixed Deposits etc. Since retirement is a long term goal, it is important to understand the impact of inflation on your financial goals. Inflation reduces purchasing power substantially.  So it is advisable that the asset chosen should return more than the inflation rate. Equity mutual fund is the best asset class for wealth creation in the long term.

As you see from the example below, both Mr.X and Mr Y started at the same age and with the same amount, but Mr X invested an Equity Mutual Funds while Mr Y invested in Fixed Deposits... as a result, Mr X's corpus is approx 4.5 times more than Mr Y

To Summarize: 

Investors need to understand the impact of inflation. If your monthly expense is Rs. 30,000/-  today, and you retire 30 years from now, you will need Rs1.80 Lakhs every month to cover your expense, assuming the annual inflation rate is 6%. So it is important that we start investing early and in the right kind of asset class.

I understand that the word "Retirement Planning" might not really excite you right now, but if you live long enough, it is inevitable there will be a time you will need to tap into long term saving. Planning for retirement is a lifelong process, not just something you worry about once you are nearing it. A good way to start is to sit down with a financial coach to determine the pathway that will best help you achieve your retirement dream.