If you're starting to plan your retirement in your early 20s, make sure you divert your savings to high return products.
When do you actually start thinking of planning for your retirement? It is only when you are in your late 30s or early 40s. By the time you must have got the right answers to your questions. Normally, during the early stages of your life, retirement planning is among your last priorities. However, this is not the ideal way of thinking about retirement planning. Starting early can make a huge difference to your final corpus as you'll have close to four decades to save for this goal.
Harsh Gahlaut CEO of FinEdge said that if you're starting to plan your retirement in your early 20s, make sure you divert your savings to high return products like mid-cap equity funds, without paying too much heed to the risks involved. Investing via the SIP route will smooth out your returns over the long run.
“Start off small but step up your monthly savings on an annual basis, even if it's by adding as little as Rs 1000 per month. Do not get stuck into a pension ULIP that will force you to buy a low yielding annuity at the end if the plan,” he advised.
Why should you plan early?
Imagine a 40-year-old who needs to build a corpus of Rs 5 Crore by the time she hits 60. This requires an investment of Rs 50000 every month in a product that yields 12% p.a. However, if you are 20-year-old and want to build a corpus of Rs 5 Crore at 60 you will be required to invest only Rs 4000 every month in a product that yields 12% p.a.
Amar Pandit, Founder, HappynessFactory.in said that for someone not used to the discipline of planning and saving regularly, setting aside Rs 50000 every month can seem next to impossible. Nevertheless, we advise clients to start immediately with whatever their best possible current figure is. The contributions are gradually increased based on computations considering the person’s age, risk profile, liquidity needs, existing assets. The beautiful thing is, they still get to the desired corpus even though they started late and from a much lower investment than actually required!
“The critical issue though is, important factors like inflation are often ignored or underestimated by people as they estimate their future expenses. Therefore, it is highly recommended to take the help of a trusted financial advisor who will draw up a formal retirement plan, once your goal is clear,” he said.
How to go about planning your retirement?
First, decide the age at which you would like to retire or slow down. Next, think about the lifestyle you desire post-retirement, which will lead you to the retirement income you would require. Your current expenses, excluding expenses like those on children, EMIs, that you will not incur in retirement, will be a good point to start from. Then adjust this number for inflation. That’s the number you need to aim to garner by the time you retire.
Finally, as per your age, risk profile, needs, existing assets etc., your financial advisor can suggest you the right investment options which will help you achieve your retirement goal.
ConclusionGiven that retirement is a phase that every individual will go through and money needs to be provided for some 15-25 years, it is never too late to plan. But, while planning towards your retirement, you should always treat your retirement corpus as sacrosanct and avoid succumbing to the temptation to use it for lifestyle spends. Even a small redemption early in the accumulation cycle can set you back tremendously. Also, if you have not started your investment yet, do it from today!