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3 tips to build your own retirement corpus

Gone are the days when retirement was strictly at age 58-60 and people were mentally prepared for the same. When computers have been replaced by iPads and tablets, telephones with mobile phones and multi sim mobiles and then notepads, today‘s youth wants everything faster and better and in a comprehensive manner.


Deepak Yohannan
MyInsuranceClub.com


Gone are the days when retirement was strictly at age 58-60 and people were mentally prepared for the same. When computers have been replaced by iPads and tablets, telephones with mobile phones and multi sim mobiles and then notepads, today’s youth wants everything faster and better and in a comprehensive manner. Hence they even dream retirement at an early age of 45-50 years. Whether or not they would actually retire so early is completely a personal call or they may even like to start something of their own with the capital accumulated; but all such plans would only be successful once they have a Retirement Corpus at their disposal. Thus, planning to build up a good Retirement Corpus is of utmost importance and cannot be delayed or ignored under any circumstance.


Most people do not have a proper planning to build up the corpus and hence they fail to save adequately for retirement. However, if you want to build a sizeable retirement corpus, you must invest according to your risk appetite and your horizon of investment. Basically you must start early and review your portfolio regularly but not resort to balancing the same at short intervals.


There are some basic tips which if you follow diligently it would surely help you to build your Retirement Corpus and save you the trouble of worrying for the same when it’s actually time for you to sit back and enjoy.


Phases of retirement corpus:


There are 2 phases of a building a Retirement Corpus; namely the Accumulation Phase and the Vesting Phase. In the Accumulation Phase, you are expected to build up the corpus by right investment and then reap the benefits in the Vesting Phase. There are some traditional Deferred Annuity Plans in the industry which help you to have your own retirement annuity but you can always have your own Retirement Corpus and then choose to opt for Immediate Annuity Plan if you want pension.


3 easy tips to build your own retirement corpus:


1. Start Early: this is what everyone says, but I would substantiate the same with a logic- Power of Compounding.


What is Power of Compounding?
If you save Rs 100 per year and get an annual interest of 10%, you will have Rs.110 at the end of Year 1. Due to Compound Interest being accumulated the next year you will get a 10% interest on Rs.110, which will then leave you with Rs.121. The next year, interest will be calculated on Rs.121 at 10% and so on. In time, these savings will grow exponentially.


So, if you invest Rs.100 with a compounding interest of 10% per annum, your savings would double up in 7.2 years by the rule of 72. If you equate the same to a larger amount of Rs.10 lakhs in approximately 7 years, it would grow to 20 lakhs. Remember you will be consistently saving up too, topping up existing funds, hence, if you are planning to retire 60 years from the time of the investment, it will approximately snowball to about 6 times from its original value. This is the avalanche effect of compound interest and called the Power of Compounding.  Compounding interest is like wine, yields better results when money is saved over longer durations. Thus, if you start early, your savings and investment would double, triple and quadruple even before you realize the same by this avalanche effect of the Power of Compounding.


2. Invest instead of only Save: Investment is more important than just saving money as it would help the money you can save to grow and beat the Inflation, etc.


India’s savings rate is higher than most economies and this is something that should be capitalized. Most households save a lot of money without investing the same and this is detrimental because the Inflation eats it up if your money does not grow significantly to beat Inflation. Thus, if you have money at home or in your bank account or even Fixed Deposit for that matter, Inflation along with Time Value of Money is actually eating the same and reducing the value of your Money. Hence you need to invest it in the market, according to your risk appetite, i.e. how much risk you can afford to take and the time horizon. Always remember that the risk of investment reduces over time as it gets spread out.


3. Review the Portfolio Regularly according to the Goal: Setting the initial goal at the beginning and then tracking the same throughout the tenure actually raises the momentum of the achievement.


Thus, by following the simple steps of pure and basic investment strategy, you can safely build your Retirement Corpus. Investment can be according to your risk appetite and should be spread across various assets like Mutual Funds, Gold, Real Estate, PPF, Bank Fixed Deposits and even Derivatives and Options, if you wish but it should be diversified and balanced according to your Risk Taking Capacity and the Time Horizon so that when you need the liquidity, it should be available. Hope this helps you to a more secured financial future ahead!

The author is CEO of MyInsuranceClub.com and can be reach at deepak@myinsuranceclub.com


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First Published on Dec 31, 2012 06:33 pm
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