Retirement Planning and the Cost of Delay: You May Lose Rs 1.2 Crore by Starting 5 Years Late
Understand how delaying retirement investments can drastically reduce your final corpus. Learn with examples why starting early is key to building long-term financial security.
Retirement planning is the process of determining income goals and the actions required to achieve them during one's non-working years. A key component is starting early. One major concept that often goes overlooked is the Cost of Delay—the lost potential wealth caused by postponing investments.
What Is Cost of Delay?
Cost of Delay refers to the difference in investment corpus when a person delays their investment by a few years. Due to the power of compound interest, even a small delay can result in a significantly smaller corpus by retirement.
The Power of Compounding
Compounding is when your investment earns returns, and those returns in turn earn more returns. The earlier you start, the more cycles of compounding you enjoy. Delaying even by 5 years can mean you’ll have to invest more per month or settle for less corpus at retirement.
Example: Cost of Delay Over 30 Years
Assuming retirement at age 60 and a monthly investment of ₹5,000 with 12% annual returns:
|
Investor
|
Investor A
|
Investor B
|
Investor C
|
Investor D
|
|
Start Age
|
25
|
30
|
35
|
40
|
|
End Age
|
60
|
60
|
60
|
60
|
|
Monthly Investment
|
₹ 5,000
|
₹ 5,000
|
₹ 5,000
|
₹ 5,000
|
|
Investment Period (Years)
|
35
|
30
|
25
|
20
|
|
Total Invested (₹)
|
₹ 21,00,000
|
₹ 18,00,000
|
₹ 15,00,000
|
₹ 12,00,000
|
|
Corpus at 60 (₹)
|
₹2.96 crore
|
₹1.76 crore
|
₹1.01 crore
|
₹57.6 lakh
|
|
Cost of Delay (₹ lakhs)
|
-
|
₹ 1.2 crore
|
₹ 1.95 crore
|
₹ 2.38 crore
|
Interpretation of the Table
The table highlights how delaying your investment for retirement significantly reduces your final corpus due to the cost of delay. Here’s the insight:
- Investor A begins investing at age 25 and accumulates ₹2.96 crore by age 60. This is the benchmark.
- Investor B, who starts 5 years later at age 30, ends up with a smaller corpus of ₹1.76 crore, losing ₹1.2 crore in potential wealth.
- Investor C, beginning at 35, ends with ₹1.01 crore, losing ₹1.95 crore compared to Investor A.
- Investor D, starting at 40, ends with just ₹57.6 lakh, facing a maximum cost of delay of ₹2.38 crore.
All investors contributed the same amount each month (₹5,000), but the duration of investment made the biggest difference due to the power of compounding. The later you start, the shorter the compounding period, and the greater the loss in long-term returns.
Conclusion
Delaying investments even by a few years can cost you crores. Start investing early, even with small amounts, to leverage compounding and build a larger, more secure retirement corpus.
Disclaimer: The article is for informational purposes only and not investment advice.