We all earn and save to have a bright future, but we never think of saving exclusively for our retirement! Is retirement not our future? As per a report, 58 % of Indians do not know what their retirement income would look like. One of the reasons cited for disinclination is a lack of understanding of long-term financial planning.
Our current post will dwell into why retirement planning is important and starting early is crucial! Let’s dive in –
Planning for retirement – Impact of Starting Early or Late
Timing is important. The sooner you start saving – even pennies – the results would be that you would be a step closer to your retirement goal than an individual who starts late.
Let’s take an example –
Amount of Corpus Needed
If an individual starts an SIP for the “retirement years” [as specified in above table], here is the SIP amount one would need to park each month to reach the retirement goal.
As we see, although Kavita needed a higher retirement corpus, her monthly SIP amount is quite low when compared to Aruna or Jigna. The secret is the extra years of compounding interest that got Kavita a step closer to her retirement goal. Aruna and Jigna would need to save more to make up the loss of time! Or in other words, the cost of waiting adds up to make an extra cost!
What’s the right Age To Start Retirement Planning?
“The sooner you begin saving, the better your chance of reaching your retirement goals.” Expert’s advice one can start planning for the retirement when they are young and starting to earn. An Early habit of saving could serve fruitful in the long run. This is due to the power of compounding in returns.
Retirement Planning for Millennials
With millennials making their rule and breaking the prototype of building their firm to switching firms now and then, they also need to look at the retirement goal differently. Here are some of the tips that could help them –
- Get a complete picture – with multiple accounts at different banks and branches it is often a messy thing to know how much money you own. So get yourself an aggregator or any other tool that helps you to know “how much money you have.”
- Keep a tab on your money – Keep a tab on your expenses and manage them in an Excel or any of the mobile apps that could also help you to plan your monthly budget, alert you with renewals date and show your returns on investment.
- Get insurance cover for yourself and your family – Do not fool yourself of not having health issues or medical emergencies. Insurance would help you and your family to maintain the same standard of living even though you are not there or not in a condition to earn
- Set your financial goals – Plan your portfolio such that you are covering your retirement, Childs education, some liquidity in case of emergencies and able to meet the same standard of living.
- Review your portfolio on regular basis
3-Steps to Plan for an Early Retirement
Do you plan to retire early and fear if you would be able to maintain the standard of living? Here are 3-steps planning that could make your life easier.
- Set the Number – Retirement age means differently for each. Some people could happily work until 75 years of age, and some want just to retire at 45. So set a number for yourself.
- Willing to Work post retirement or not- Individuals who are willing to retire may have a passion for living for [that could also give them money] or just want to enjoy the free time. So the retirement planning needs to be done accordingly as if you are willing to work – your financial corpus amount may get reduced and if not you may want to save a bit more.
- Choose what could offer guaranteed returns – Your portfolio should be such that your investments would surely give you guaranteed returns. Choose them wisely, if needed take help from a financial planner.
Early Retirement Planning Tips and Insights
Start Early – As we just saw in the above example how starting early with small amount could lead to a sure shot way of attaining the retirement goal. So start young!
- Set the Expectations Right – A long-term financial goal could be a mess if you have not done your math’s correctly. So make sure you do not underestimate the value you would need once you retire.
- Clear your debts – This is one of the thumb rules that you should be able to pay off all your debts before you hit your retirement age, as with retirement your income may get to zero but your expenses could rise anytime. So debt is to be a clear tick off from your list.
- Balance Your portfolio and avoid risky instruments – Retirement is a long term goal, and hence, experts advice to go slow and steady rather than putting your retirement funds at risk.
We hope we have answered your queries on why planning for retirement at an early stage is beneficial for you. If you still have any unanswered questions or need help, feel free to contact us .
We would be glad to help you with your planning and investment related decisions.
Content Strategist – Dilzer Consultants Pvt Ltd.