Started investing in your 40s-50s? Compensate for lost years with higher savings and disciplined investing

While social media is full of stories about how 35–40-yearolds are retiring early, there is another side which doesn’t get highlighted. About those in 40s (and 50s) who still haven’t begun their investment journey properly and who are already— for lack of a better word—late.

Honestly speaking, starting to invest in 40s or 50s (for retirement) isn’t ideal. Starting early (in 20s) has real advantages and there is enough maths to prove that. But it is what it is. Life happens and we are dealt cards we don’t want to play with. In your 20 and 30s, many of you had an education loan, then home loan, siblings’ education/marriages to contribute to, and dependent parents to take care off. It is not easy for everyone.

But suddenly at 40, you now realize that while you took care of everyone and everything, your retirement is closer than what you thought and you are totally unprepared for it. And in fact, there is also a hanging sword of ‘forced early retirement’ these days.


If you are at this juncture, then first thing to do is to accept the reality. No need to pity yourself. You cannot delay any more. And it is time to play the catch-up sprint. But not like what you think.

Don’t bet (only) on high returns

This is the biggest mistake which late starters make. They develop a view that they need to generate very high returns to compensate for the late start. While mathematically it may not be wrong, in reality it is not that easy. Average returns (from equity markets) are easy to get, but high returns aren’t available on demand. And chasing big returns and investing in high-risk instruments can often backfire and lead to large losses, which take years to recover from. And that is one luxury late starters don’t have.

Get ready to save more. A lot more

Suppose at 30, you wanted to have Rs.10 crore corpus by age 60. Then at 11% average returns, you would have needed a Rs.36,000- 37,000 monthly investment. But if you are starting at 40 and want to reach the same Rs.10 crore by age 60, then at 11% returns, you need to start investing about Rs.1.15 lakh per month!

The math is clear but uncomfortable. The earlier you start, the lesser you need to invest. But at 40, you don’t have the comfort of comforting math. You need to save more. A lot more.

The good thing is that unlike in your younger days, you would be earning well in your 40s and 50s. Combine this with the fact that many of your other goals like house purchase, saving for kids’ education etc. would have been by now largely (if not fully) managed So you can invest more as the surplus is there. You would surely find people around you in their 40s and 50s who can save a reasonably large percentage of their incomes (at times 50–60% or even more), if earning well.

One thing that often happens in the middle ages is that with increasing incomes, people generally keep ‘upgrading’ their lifestyle. As a result, less money is available for saving. So, some of the late starters will have to adjust and control their spending, to bring their ‘late’ retirement plan back on track again.

Most investors who start late tend to focus more on higher returns. But the fact is that you do not need 20% returns on your investment each year. If you are willing to rationalise your expenses and start investing bigger amounts, taking a moderately aggressive approach and getting reasonable 10–11% returns is more than sufficient. People don’t realise it but investing more is more important than getting higher returns.

(Retirement) action items

• A house (for most) and children’s future are important. But so is retirement. You won’t get a loan for retirement, but your child can get a loan for education. So do not sacrifice your retirement. More so when you are already late.
• No need to take high risk and get into futures and options (F&O) and similar adventures. Taking on more risk doesn’t guarantee better returns. It might in fact backfire big time. Stick to the basics and be ready to cut down unnecessary expenses to invest. That is enough.
• Your EPF/NPS/PPF are already taking care of the debt part of retirement portfolio. It is better to allocate major part of the remaining surplus to equities. Build a diversified portfolio of equity funds that has large-cap index fund, one or two flexi-cap/ large- and mid-cap/multi-cap funds, one hybrid fund, one or two mid- or small-cap fund (assuming your risk appetite allows for it) and one international fund. That’s it.
• Make sure to keep increasing (step-up) your monthly investment as your pay rises.
• If you are closer to 50 than 40, then in addition to monthly investments, try to pump in additional bonuses, incentives and other windfalls into retirement corpus. If you have some real estate that you are not sure of, liquidate it and invest the proceeds.

Put your wisdom to good use

When you were young, your circumstances or choices would have stopped you from investing properly. But now with fewer distractions, and age-appropriate wisdom on your side, do not make the same mistake again. Do not delay it any further.

The Author is Founder, Stableinvestor