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What is the danger of starting investments late?

Posted on 27 Jun 2021
Author: Sayan Sircar

Tags: Set Goals

5 mins read
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You pay a heavy price by waiting to start investments: this post shows the effects of every year of delay

Calculation of SIP amount

We have already covered

We will extend the concept developed while calculating for a traditional retirement goal and show what happens when investments are delayed. There may be many reasons for starting investments late like

not calculating the cost of retirement goal (read this post)
not having an understanding of how to start goal-based investments (start here)
always waiting for the right time to enter markets
thinking planning for goals is complex (it’s not - use this plan)

Impact on retirement goal of delaying

We will use the example from this post where a SIP value of ₹ 29,777 is found for retirement 20 years away and ₹ 30 lakhs of starting lump sum amount.

Calculation of SIP amount for multiple goals

We will see what happens for each year of delaying investments for the next ten years. We assume that every year the starting expense of ₹ 6 lakhs increases at the same 7% inflation as in the example.

Cost of delaying investments

If there is one year of delay, the SIP requirement jumps by 15% to ₹ 34,218 and then to ₹ 39,300 (32% increase) if the delay is just 2 years. If the delay is 10 years, then the SIP amount jumps more than 4 times to ₹ 1.20 lakhs. This is the cost of starting late.

Complete impact of delaying investments

Cost of delaying investments - full sensitivities

This table shows the different SIP amounts for every year of delay or increase in the amount required in the first year of investment (increasing at 7% a year). For example, if the starting investment is ₹ 9 lakhs and 14 years is left to retirement then the SIP amount will be more than ₹ 68,000.

This should convince every reader that there is a lot of benefit in starting investments as early as possible. It is easy to do as shown here:

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Worked out examples

We have two worked out examples for a 39-year old and 48-year old investor targeting retirement. We see that with the same asset base of ₹40 lakhs and the same monthly expenses of ₹45-50,000 in retirement

the 39-year old needs to invest ₹52,223/month: How much money does this 39 year old investor need to invest per month to retire at 58?
the 48-year old needs to invest ₹111,409/month: Late to plan retirement: how much money does this 48 year old investor need to invest per month to retire at 60?

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Worked out case studies for goal-based investing

Case study: how can this middle-aged investor with two children plan for retirement and children's goals?

This article shows how a single-income middle-aged couple with two small children reach their retirement and children’s goals.
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This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?

This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
Case study: how this double income recently married family can perform DIY goal-based investment planning

This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Case Study: How should couples in their 40s with a new baby plan their financial future?

Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
Case study: how this double income single kid family can perform DIY goal-based investment planning

This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.

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Topics you will like:

Asset Allocation (21) Basics (8) Behaviour (12) Budgeting (12) Calculator (25) Case Study (6) Children (17) Choosing Investments (40) FAQ (12) FIRE (13) Gold (22) Health Insurance (5) House Purchase (29) Insurance (16) International Investing (12) Life Stages (2) Loans (17) Market Data (7) Market Movements (17) Mutual Funds (46) NPS (7) NRI (19) News (18) Pension (8) Portfolio Construction (53) Portfolio Review (27) Reader Questions (8) Real Estate (7) Research (5) Retirement (38) Review (15) Risk (6) Safe Withdrawal Rate (5) Set Goals (28) Step by step (15) Tax (59)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

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