Retirement planning should not be postponed for tomorrow. Here’s how you can start planning for your retirement without any worry.
Max Life Insurance’s India Retirement Index Study found that four out of five Indians fear their savings will not last through retirement. This means that 80% urban Indians are not ready for retirement. But what is stopping them from investing for retirement? The study found that 45% of Indians think their children will take care of them, while 36% think there is enough family wealth and 33% say that it is too early to think about retirement.
The biggest mistake that people make when they think about retirement is that they feel they have a lot of time in their hands, and they can begin planning in their late 30s. However, if you start saving early for your retirement, you will be able to build a sizable corpus. Also, many think that planning for retirement is difficult and boring. In this blog, we are going to show you why you should start planning early and how easy it is to do it.
Starting In Your 20s Vs Starting Later
Allocate Less If You Start Early: Let’s say you start investing for your retirement fund when you are 27, and looking to retire at 60. You have invested via SIP in diversified mutual funds and expect a moderate return of 12% on investments, and inflation is at 6%. In order to maintain your lifestyle, you will need ₹4.02 crore in your retirement fund. That’s a lot of money! But if you have invested in the right instruments, you will be able to build the fund seamlessly.
If you want to accumulate ₹4.02 crore, and start investing in 27, you need to put ₹11,502 via SIP every month and by the time you are 57, you will have accumulated the corpus. However, if you start investing via SIP at 40, you would have to invest ₹40,637 every month for 20 years to accumulate ₹4.02 crore. So, if you arrive late to the investing game, you might have to shell out more money every month to accumulate the retirement corpus.
Developing A Habit: It is better to start early, as once you start investing from your first salary, you will be able to develop an investing habit easily. However, as you get older, your life will be filled with more commitments, including taking care of your parents, children, etc., and you might not be able to allocate over ₹40,000 every month towards your retirement.
Invest Less & Earn Big: Also, if you are investing early, you will be investing less amount but end up with a big corpus, thanks to the power of compounding. Let’s see this in an example. If you start investing 15,000 in mutual funds via SIP from the age of 27, you would have built a corpus around 5.29 crore in 30 years.
However, you would have invested only 54 lakhs and the rest of the amount comes from the interest. But if you start investing 30,000 in mutual funds via SIP from the age of 40, you would have built a corpus of only 2.99 crore but you would have invested a whopping amount of 72 lakhs.
More Options To Explore: Mutual funds are a great option for you, if you are looking to build a retirement fund. There are many types of mutual funds, such as Equity, Debt and Hybrid funds. If you start early in your life, you can choose to include high risk instruments like Small Cap Funds, Sectoral Funds, in your investment portfolio. However, this does not mean that your only investment option is Mutual Funds. Although mutual funds offer you the benefit of diversification, you can choose other instruments to earn higher returns. These options can include Stocks, Global Funds, and even cryptocurrencies. Well, you gotta try ‘em all to find the best one that suits your goals.
Other Important Stuff To Do
Health Insurance: The pandemic has shown us the importance of buying health insurance and how medical expenses can add up if you are not prepared for it. Hence, it is better to buy a health insurance plan for yourself when you are young. Even if you are covered by your employer, the cover will be applicable only until you are employed. So, it is better to have health insurance on your own.
Also, the reason why you should be getting a plan early on in your life is that insurance premiums tend to be higher if you buy a health insurance plan when you are in your 40s or 50s. The reason behind this is that insurance premiums increase with age. They may also come up with loads of terms and conditions for certain diseases that you might need to comply with.
Reducing Debt: Education loans, home loans, credit card bills – all these debts accumulate when you are young and the repayments for some loans continue for years. However, it is not a wise idea to carry your debt into your retirement age. If you use your retirement corpus to pay off your loans, it will have a big impact on your retirement life, and even relationships.
Hence, it is better to pay off your loans before you retire. If you have taken a home loan, it is better to pre-pay whenever possible. Pre-paying will reduce the principal amount and help you close the loan earlier than its tenure. If you foreclose a loan before its term, it will help you make considerable savings on interest and could also make you debt-free by the time you retire.
In The End…
Planning for retirement isn’t something that only old people do; it is something that has to be done from your first salary so that you have a comfortable retirement life. If planning for retirement makes you feel old, you can get a financial planner to do it for you. But if you find a financial planner expensive, then you can DIY the whole process.
Koshex is an investment platform, where you can invest in multiple investment options. All you have to do is give your investment goal and risk appetite, and then our platform will create a hyper-personalized investment solution for you. You can invest in this solution and achieve your ideal retirement corpus with ease. Plan for retirement at Koshex today, if you want to feel like an adult! Just do it, it’s no big deal…