Many people start to feel financial pressure in their mid-30s. School fees and home loan payments begin and parents need your support financially. Planning for retirement, still 15 or 20 years away, is often postponed.
Building the mix: growth, debt, safety buckets
As you move through life, your portfolio shouldn’t include random investments. It should be organised into categories based on when you need the money.
Growth bucket for early years (20s & 30s):
At this stage, you have few family responsibilities and retirement feels distant. You may have started earning or got married. The instinct is to handle the immediate and delay the distant. However, this is actually your most valuable time for saving. Start small but start now.
Even small, regular investments now will grow more than larger amounts invested later. For example, a Rs 5,000 monthly SIP started at age 25 and growing at 12 per cent a year can become about Rs 1.76 crore by age 60. If you start the same SIP at 35, it grows to only about Rs. 52 lakh, which is just a third of the earlier amount for the same monthly investment.
Set up an emergency fund first, then start consistent retirement contributions. Increase it as your income grows. At this age, you can keep 75-80 per cent of your retirement savings in equities. You have enough time to recover from market ups and downs.
Balancing act for middle years (40s):
This is often the toughest stage to manage. Your income is higher but your responsibilities are increasing as well. You might have a home loan, children in school, and parents who need financial or medical help.
For instance, Rahul, age 38, who earns Rs. 1.2 lakh each month. After paying a Rs 40,000 equated monthly instalment, Rs 15,000 in school fees, covering household costs, and supporting his parents, he has Rs 20,000 left. He wants to invest but isn’t sure how to divide it between his children’s education and his own retirement.
Income bucket for pre-retirement years (50s):
At this stage, retirement is only 10 to 15 years away. Your focus should move from building your savings quickly to protecting what you’ve already saved.
For instance, Sunita, age 49, has invested for 15 years and built a retirement fund of Rs 45 lakh. She’s concerned that a market downturn could erase a big part of her savings just before she retires.
This is a legitimate concern. A 30 per cent drop in the market five years before retirement hurts much more than the same drop at age 30. Because you have less time to recover, your savings are much bigger, and the loss is larger.
Therefore, start moving some of your investments from equity to debt slowly, not all at once. Reduce your equity by 5-10 per cent every two to three years.
So, if you have a 50-50 split between equity and debt at age 50, aim for about 30 per cent equity and 70 per cent debt by age 58. Keep your SIPs going but put more of your new contributions into debt and hybrid options.
Income planning near retirement
About five years before retirement, your main question shifts from “How do I grow my savings?” to “How do I make them last?”
Create three buckets for retirement:
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Short-term ( Under two years): Keep this in liquid investments to cover immediate expenses and avoid selling equity when the market is down. -
Medium-term (three to seven years): Use hybrid or conservative debt funds. -
Long-term (Over 7 years): Keep in equity for growth to beat inflation over retirement, as you may need your funds for 25 to 30 years.
An annuity or pension can be helpful if you want a guaranteed income and don’t have other steady cash flow. But, if you don’t have a pension or rental income, putting part of your savings into an annuity to cover basic expenses can give you peace of mind.
How to estimate and build your corpus
Many people pick random numbers like Rs 1 crore or Rs. 2 crore without checking whether they are enough. The right amount depends on your expenses, inflation and how long you will live after retirement.
Start with your current monthly expenses. For example, if you spend Rs. 60,000 today, it will cost more over time due to inflation. At 6 per cent inflation, Rs. 60,000 can become around Rs. 1.92 lakh per month in 20 years. To cover this for 25 to 30 years, with a conservative 7 per cent return after retirement, you may need about Rs 3 to Rs 3.5 crore.
Most people underestimate this because they think about today’s prices, not future costs.
Also, plan separately for healthcare. Medical costs rise faster than regular expenses, about 10-12 per cent each year. Keep a health fund of Rs 15-25 lakh in safe options like fixed deposits or debt funds. This should be separate from your main retirement savings.
Avoid mistakes that affect retirement planning
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Do not stop your SIPs when markets fall. This is actually when you get to invest at lower prices. -
Avoid using your retirement savings for short-term needs like weddings, cars, or home upgrades. These expenses feel urgent, but they can delay your future goals. -
Do not plan for a short retirement. Many people live 25 to 30 years after retiring, so your savings should last that long. -
Do not depend only on your children for support.
FAQs
How much should someone save for retirement at different life stages?
In your 20s, save 15-20 per cent of your income. By your 40s, if you started late, increase this to 25-30 per cent. Use an SIP calculator with an inflation-adjusted target to see if your monthly savings will reach your desired corpus.
How should the portfolio change with age?
Shift from equity-heavy to debt-heavy as you near retirement. Use 75 per cent equity in your 30s, 60 per cent in your 40s, 45 per cent in early 50s, and 25to 30 per cent at retirement. Also, redeem equity units gradually and consider tax implications.
When does an annuity or pension product make sense?
If you don’t have a guaranteed income in retirement, consider using an annuity to cover basic needs. Don’t put all your savings into it; instead, balance growth and flexibility with other investments.
What mistakes derail retirement planning most often?
The most common mistake is starting too late or stopping investments when markets fall. Some people also use retirement money for other expenses, such as weddings or repairs. Another big mistake is ignoring inflation, especially medical costs. This can make your savings run out faster than expected.
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