What should you do if you have not started planning for retirement even at 40?

Leela is 40 and has saved nothing for her retirement. During her 20s and 30s, she was busy building her business and did not have much to spare. Subsequently she went through a divorce, which caused a financial setback. She is now a single mother who runs a stable business. While she doesn’t have a corpus to fund her retirement, she is otherwise well-placed financially. She has paid off all major debts and has been setting aside funds for her son. She is convinced about the benefits of a retirement corpus, but wonders if there’s any point in starting to save now, as she thinks it is too late.

Leela must understand that there’s no such thing as ‘being too late’ for retirement planning. All she needs to do is to make a start by determining how much she needs to spend at present, and then extrapolate it to ascertain the amount she will need after retirement. This should be her goal amount. For a single woman like her, it is important to prioritise her retirement saving over everything else, even her son’s education fund.

Once she is done with the initial planning, Leela has to go about the actual implementation of the savings plan. Given that she is at the peak of her career in terms of earnings, she should be able to build her retirement savings rather quickly. She needs to be aggressive, which means putting aside as much as possible from each month’s earnings to make up for lost time. She might also have to make some adjustments by cutting down on her ‘wants’ and ‘desires’ in order to free up a considerable amount of funds for saving. Thankfully, she has no outstanding liabilities to pay for.

Leela should consider incrementally topping up her saving amount by a certain percentage every year. She could also consider ‘catch-up contributions’ by diverting her annual bonuses and other unexpected cash flows, whenever possible. It is important for Leela to not let the late start discourage her from beginning to save, regardless of her goals. If she is to start saving at age 40, she will have to be a lot more passionate and resolute about saving than someone who started earlier. She must up the ante by saving aggressively, cutting down on unnecessary costs and debt, and maximising earnings in order to make her retirement plan work.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)