Starting Your Retirement Planning in your 40s? It is never too late!

Thinking and planning about retirement is usually the last thing that would come into the mind of a youngster who has just started his or her career. In fact, it is not very easy to focus on retirement planning in our 20s or 30s, when most of us are busy prioritizing spending on long awaited aspirations with the newfound financial freedom. In our 20s, the focus would be on acquiring a fancy motorcycle, an expensive mobile and other nicer things that have till then been elusive from the affordability point of view. Many of us are oblivious to the need for saving for retirement, early in our careers and in cases when we are not, we procrastinate. 

Retirement is typically the last thing on the agenda. And when we reach our 40s, there is a sudden realization that time is running out fast, and we find ourselves unprepared for life after retirement. Most of us are in the same boat. 

If you are on the wrong side of the 40s, it may seem to be a daunting task, but it is never too late to save for your retirement. Although you may not generate a corpus as large as the one you would have generated if you had started investing earlier, you can still create a corpus to support your lifestyle after retirement. We must keep in mind that even in our 40s, we have at least 15-20 years left for retirement, which is a long enough investing horizon to benefit from the power of compounding and generate long term wealth. At the same time, you would have been through with the initial expenditures related to setting up the household. Your children would be in school and you would have established yourself in your job or profession or business. And that would allow you to spare a higher amount for the purpose of retirement. For example, a monthly SIP investment of INR 50,000 per month, at an assumed CAGR of 10%, can generate a corpus as large as INR 3.79 crore in 20 years.

Therefore, there are a few things investors in their 40s can do to ensure building a corpus as large as possible for retirement:

1.Understanding finances: Creating a budget and understanding in detail about monthly expenses can help us realize where we need to cut down and by how much, thereby creating room for retirement investing.

2. Debt reduction: Debt, and interest on it, can absorb a huge chunk of our income. Reduction in debt should be a priority, as it can enable us to focus on investing for our retirement.

3. Make a plan: We need to decide on a reasonable retirement corpus to target, based on an estimate of expenses per month post retirement, factoring for inflation.

4. Investing as much as possible: Since investors who start in their 40s need to catch up because of starting late, it is imperative to invest as much of our income as possible. Budgets need to be analyzed, and avoidable expenses need to be reduced or eliminated to the best extent.

Fortunately, mutual funds, especially retirement oriented mutual funds that specially cater to this need, can be an ideal investment vehicle to save for your retirement, even for investors in their 40s. HDFC Retirement Savings Fund (‘the Fund’) is one such mutual fund scheme that can help to investors achieve their retirement goals. It is a notified pension scheme under section 80C of the Income Tax Act, 1961. Investing in the Fund can also help an Individual / HUF in claiming a deduction of up to Rs. 1,50,000 from their taxable incomes. For an investor in the highest tax bracket, this translates to tax savings worth Rs. 46,800 every year (ignoring surcharges).* Investors can, therefore, consider investing in the Fund and avail the twin benefits of saving tax and building a retirement corpus.

However, in your 40s you may not have the risk-taking ability of a 20 year old, and hence investing the entire corpus in equities may not always be advisable. Moreover, every individual can have a different risk appetite, and hence should not have the same asset allocation in their portfolios. HDFC Retirement Savings Fund offers investors 3 different plan options - the Equity Plan, the Hybrid Equity Plan, and the Hybrid Debt Plan. Equity Plan offers the highest exposure to equities, and Hybrid Debt Plan the lowest. Investors can therefore invest in a plan that better suits their risk-return profile and their stage of life.

The fund has a lock-in period of 5 years or until the age of 60 - whichever is earlier. This ensures long term investment discipline. When a specific portion of income gets locked-in and earmarked specifically for our retirement, we automatically tend to rationalize our spending on other personal/social requirements.

Remember, it is never too late to save for your retirement. Even if you begin this journey in your 40s, you can still make a difference. Being a goal-based investment vehicle, HDFC Retirement Savings Fund helps investors balance their current aspirations vis-à-vis their future requirement of leading a retirement life as comfortable as possible.

Investors should seek appropriate advice before taking a decision to invest in any securities. The information given is for general purposes only. Past performance may or may not be sustained in future. HDFC Mutual Fund/AMC is not guaranteeing any returns on investments made in the Scheme. The current investment strategies are subject to change depending on market conditions. The views / information provided do not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. The statements contained herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Investors should be aware that the fiscal rules/tax laws may change and there can be no guarantee that the current tax position may continue indefinitely. In view of individual nature of tax consequences each investor should seek appropriate advice.