Why Preparing for Retirement Needs to Start as Early as Possible
When you are in your early 20’s, you would have a thousand thoughts that come to your mind. You wish to set your life goals and your career path. Retirement is something which is the last thought that comes in your mind. You think that it has time and you will manage it later, but the fact is that it is never too early to start your retirement planning. You must start planning your retirement as early as possible, to ensure that everything goes smoothly. Start planning your retirement as soon as you start receiving your first paycheck.
Take smart moves and remember that saving at least 15% of your actual income is something which is crucial for a bright retirement. The ratio of expense must gradually decrease from 80% to at least 60% in a few years so that you have millions to spend when you are free after your retirement. Work hard as early as possible to make your future relaxing and easy.
There are various tips with which you can go for effective Retirement planning:
Start saving small money
When you will start saving with a small amount of 5,000 in a bank monthly. It will slowly increase, and at the age of 60, you will have enough saving to enjoy retirement, full of joy. Saving as early as possible can help you save a lot in just a few years.
For example, if you start saving at the age of 25 in the bank at 8% rate. The amount will be:
Keep control of your expenses
For effective Retirement planning, you must keep an eye on your expenses. You may also make a habit of noting down monthly costs to calculate the final amount you spend in a month. If possible, reduce the expenses so that you can focus on investment planning.
Keep aside an amount for emergency
Uncertainties are a part of life, and it is always better to plan for them. When you have kept aside money for a rainy day, you are less likely to spend your retirement saving on these unexpected emergencies. This will help you maintain a fixed saving every year.
Choose the investment product wisely
If you wish to become a millionaire at the age of 60, you must invest wisely. For effective Retirement planning, it is imperative that you choose the investment product wisely. Study the available options and choose the best, which suits your needs. It is your decision that you wish to spend in long term equity, SIP, mutual fund or any other investment. You can invest the bonus you received, to ensure that you get excellent returns. Investing in equity, which is known to beat the inflation rate will make you richer whereas investing in an FD, which is typically lower than the inflation, will make you poorer every year. Ensure that you invest in the option, which could bring real returns.
When you are young, you can invest in funds, which are riskier classes of investments like SIP’s directed towards equities. As you grow older, debt funds would prove to be beneficial to you. This is so as your expenses have gone up and the financial capacity to take risks has reduced.
Retirement Planning Calculation
If you invest 6500 per month over the period of 30 years, and expect at least a 12% return, then your corpus will grow to Rs. 2.29 crores.
Step Up SIP For Retirement
With Step Up SIP, you just Step Up the Sip amount at regular intervals.
If in the above example, if you increase SIP amount by 10%, your retirement corpus will grow to Rs. 5.74 crores! This is approximately double with what you would have if you have done plain SIP.
Keep a track
It may be a digital and paperless world, and you may be a smart teen, but it is always better to keep track of your investment record. Even when the bank is sending you an SMS, and you do not have any written document for your savings, it is always better to record your monthly and yearly savings in a diary, so that you know that how much in total you have for your retirement.
Learn to pay back debts
When you are as early as possible, you may take education loans, house loan or car loan. You must learn to pay them back at the right time. Avail loans only when you can pay them back. With Retirement planning, you should also plan for repayment of such loans so that debts do not exceed your income and you still have scope for investment for your retirement. For better financial standing take loans on the basis of your income and your repayment capabilities.
Maintain a saving pattern
If not monthly, you must save at least a fixed amount yearly. When you know that how much amount you need to keep for retirement saving in a year, you can plan your monthly expenses accordingly. For example, if you wish to invest 60,000 Rs. per annum, you can start saving Rs. 5,000 every month and if you are unable to save this amount in February due to some unusual emergency, try to save 12,000 Rs. in March.
Conclusion
Right financial decisions are taken as early as possible can help you build bright dreams for your retirement. Retirement planning must start at an early age, so that you benefit the most from compounding. After retirement, there will be negligible sources for earning, and thus, it is always better to plan for a bright retirement right when you have the right sources of income.
