Five reasons you should start planning for retirement early

Planning for your retirement at an early age will give you peace of mind and more corpus to do whatever you want. You may retire early than you thought. These are possible if you set a financial goal, a purpose and start making investments at an early age.

There are so many benefits of starting early in retirement planning, a few are elaborated here:

The Power of Compounding

Albert Einstein said, “Compound interest is the eighth wonder of the world, he who understands it, earns it, he who doesn’t, pays it.” The effect of which can be seen in investing. Your investment reaches higher and higher as long as you stay invested.

Take an example of Mr A and Mr B, Mr A started SIP of Rs 20,000 per month at the age of 25 whereas Mr B started with the same amount at the age of 30. Taking the retirement age at 60 and the interest rate at 15 percent per year and have a look at their corpus after retirement.

Mr A has invested just 14.3 percent more than Mr B during the headstart of five years, but at the age of 60, he gets Rs 30.5 crore, more than double of Mr B who gets Rs 14.3 crore. So start early, and retire with more money in your pocket.

More tax benefits

Taxation cut your income, but investments help you lower your tax burden and save more for your future. Starting your retirement planning an early stage will not only help you with big corpus at the time of your retirement but also helps to lower your tax amount when you invest in the tax-deductible scheme.

One can make aggressive investments

Risks and rewards go hand in hand, you can take more risk at your early age as you have limited financial obligations. One who starts planning and investing early for the retirement can invest in a more aggressive scheme where rewards could be greater.

As you start investing early, say at age 25, mid and small cap mutual funds are better to invest in, which gives you more over the period of time, but as the times passes it is advised to stay defensive and invest in large caps and debt funds where the returns may be low but are safer in comparison.

Start early and enjoy peace of mind

Planning is all about ensuring peace of mind through better execution. The same works in retirement planning also. Starting to invest for retirement at an early age will save one from the last minute rush and making wrong bets, whereas it helps one to separate its financial obligation and investments to reach its ultimate corpus goal.

Planning at an early stage ensure that you are on a right path to make your retirement happier and stronger in monetary terms. The early stage planning makes sure that you are ready for the inevitable retirement and puts you at ease.

You could retire early

When one is done with financial liabilities and saved enough for the remaining life then it is the right time to retire. Early age planning and its best execution may help you to retire earlier than you thought as you have conserved the resource for rest of the life.

If one wants to have a hassle-free retirement where he has the financial freedom then it's better to start the planning as early as he can. If one wants fruits in future, it is better to seed the plant now. Being late does not help.

The writer is the founder of investonline.in.