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Is it too late if you start investing at 40s? Better late than Never

  • January 15, 2019

How to build a retirement fund in your 40s

A late start

Suresh was involved in running his father’s business in his 20s. He, unfortunately, suffered losses and had to close it down. He tried his hand at new businesses but failed. Finally, he decided business was not for him and took up a full-time job. Thanks to his experience, he was able to get a good job. Now at the age of 40, he is a worried man, as he has not saved anything for his retirement.

Better late than never

I tried to assure him about being better late than never. 

“Suresh, ideally you should have started saving money for your retirement in your 20s. That is when you can spend a little money every month and allow it to grow into a big amount by the time you retire. Nevertheless, you still have time. In the next 20 years, you can still build up a decent retirement fund.”

“Actually, I have some insurance policies and bank FDs,” said Suresh.

“My friend, insurance is for protection not investment. Bank FD’s are cash, which is meant for emergencies. And the interest you get on it would hardly be worthwhile when you consider inflation.”

“So, what do I do now?” asked a worried looking Suresh.

“Don’t worry, you can start saving from today. Tell me how much percent of your salary can you save.”

“I can save 15%,” said Suresh.

“That’s not enough friend. If you were in your 20s, that would have been good. Since you are starting late, you need to save more. Ideally, you need to save 20%. Cut down on some expenses or try to earn an additional income, but you must try to save 20%.”

“Ok, I will do it. So, how do I build a retirement fund?” inquired Suresh.

Building a retirement fund

“The Employee Provident Fund scheme of the Government is the best way to build some money. Do you have an EPF account from your company? You have been working for two years now,” I asked.

“Yes, I have an EPF account,” replied Suresh.

“Good! So you have made a start. But the PF alone is not enough. You need to save more. PF and bank deposits are debt, i.e.: you have lent it to the government for interest. The interest you get is decent, but not enough to generate enough money for a comfortable retirement.”

“So, should I invest in the stock market then? Isn’t it risky?” asked Suresh.

“Yes, but if you don’t take risks, you won’t get a reward. The stock market can allow you to build a good retirement fund within the next 20 years”

“What if I lose everything in the stock market?” asked a worried Suresh.

“That’s the reason you need to invest (100 – your age) in the stock market, either in shares or in the less risky option of Mutual funds. Since you are 40, you can invest 60% of your monthly savings in equity or the stock market. The balance, you can invest in safer options. I suggest you consider the NPS or National Pension Scheme. It has good tax benefits over and above the 1.5 lakh exemption given by the Govt. under Sec 80C. You can invest up to Rs.50,000 in NPS and get a tax benefit of Rs.15,000 under Sec 80 CCD. You can choose the debt option for safety. You can also consider opening a Public Provident Fund (PPF) to save money for retirement.”

“What about the stock market. How do I invest 60% of my savings there?”

“Here’s what you need to do. Let’s assume you have 15,000 per month to invest for your retirement.  40% of that, 6,000 can be invested in PPF or NPS. 9,000 can be invested in the stock market by buying mutual funds.”

“How do I get started?”, asked Suresh.

“You can contact a good Financial Planner, who will suggest you the best mutual funds to invest in. Spread your 9,000 in 3 or 4 different funds. Open a mutual fund account Start a SIP or a systematic investment plan. Then, every month 9,000 would be deducted from your account and transferred to your mutual fund account and you would start buying units of the mutual fund,” I replied.

“It seems to be quite simple!” exclaimed Suresh.

“Yes, it is. Every month your money goes to the SIP account. Open an NPS account by logging in to the NPS account. If you want a PPF account, you can do it at a post office or some of the banks. You are on your way to saving for your retirement. But do remember one thing, you need to be disciplined.”

Golden rules

I advised Suresh on the golden rules to be followed.

1) Don’t worry about the ups and downs of the stock market. If the market crashes, it will recover sooner or later. A 20-year plan is long-term and you can benefit from staying invested.

2) Be disciplined invest every month without fail. The power of compounding allows you to earn more.

3) Keep reviewing your investments periodically.


Even if you start late, you can still build a retirement fund. Invest 60% of your savings in mutual funds or shares and the balance in bank deposits, PPF, and NPS.(invest 20% of your income, try and gradually increase) month after month and year on year. Even if you start at 40, you can build a good retirement fund by the time you retire.