Years to retirement

Of the two time periods that decide a retirement plan, this is the first: how long until you stop working?

The workbook defines it as the period from the current point in time to the year of retirement — equivalently, retirement age minus current age. It shrinks by one every year unless the retirement age is moved.

It cuts both ways. A long runway means more inflation on expenses, so the target grows. It also means more compounding on savings, so each rupee saved does far more work. The workbook's conclusion is unambiguous: the compounding effect wins, which is why starting early is the cheapest way to fund retirement.

Where it enters the calculations.

The workbook states the trade-off in so many words: the lower this number, the lower the effect of inflation; but the longer the period, the greater the compounding effects and the lower the allocation from savings required.

Contrast with years in retirement, the second period, which runs from the start of retirement to the end of life and determines the size of the corpus.

It is also a risk variable. As the period available shrinks, the workbook notes, so does the ability to invest in riskier assets for better returns — a second reason a late start costs more than the arithmetic alone suggests.

Years to retirement = Retirement age − Current age
Months for PMT      = Years to retirement × 12

The workbook's Example 1. X and Y both want Rs 1 crore at 60, at 8 percent.

Ten fewer years more than doubles the monthly saving. In total contributions:

X: 4,359  × 420 months = Rs 18,30,780
Y: 10,515 × 300 months = Rs 31,54,500

Y puts in about Rs 13.2 lakh more of his own money for the same crore.

The Rani case, from Chapter 3. Rani needs a corpus of Rs 3,00,48,832 at 12 percent:

And on her goal after crediting existing investments, delaying the start by five years (25 → 20 years to retirement) raises the saving from Rs 6,876 to Rs 13,059 — "almost double", in the workbook's words.

The inflation side. For Pradeep, 30, retiring at 55, the same Rs 40,000 of expenses at current prices becomes Rs 1,71,675 a month after 25 years at 6 percent.

Chapter 3, section 3.2.3 (Time Horizon), defines years to retirement and years in retirement side by side, and every calculation in sections 3.2.2 to 3.2.7 uses it. Chapter 1, section 1.4, carries the X-and-Y delayed-start example. Expect direct computations where the only thing that changes is the number of years, and conceptual questions on its opposite effects on inflation and compounding.

• Years to retirement is not years in retirement. The first sets how far expenses inflate and how long savings compound; the second sets how long the corpus must last.
• Two opposite effects, one winner. Fewer years means less inflation and less compounding; the workbook's examples show the saving required rises sharply.
• Convert to months for a monthly saving. 25 years is 300 periods, with the annual rate divided by 12.
• Watch the Type convention. The Chapter 1 X-and-Y figures (Rs 4,359 and Rs 10,515) correspond to end-of-month contributions; the Chapter 3 Rani figures use beginning-of-month (Type = 1). Do not mix them in one calculation.
• Postponing retirement changes two periods at once. It adds years to retirement and removes years in retirement.