The Importance of Starting Retirement Plans Early in Life

The Importance of Starting Retirement Plans Early in Life


There is a reason why retirement plans are one of the most popular investments today. With economic instability and fast-changing employment scenarios, having an income plan for after retirement assumes great significance.

Saving aside adequate funds for your post-retirement years can help you deal with future uncertainties.

Also, a good retirement plan will enable you to sustain your pre-retirement lifestyle. Sign up with Koshex to explore your options.

It is never too soon to start saving for a retirement plan. An early start means a larger corpus and a longer duration for it to grow and take advantage of the power of compounding.

Setting a Savings Goal

Many find it cumbersome or expensive to invest in a retirement plan. Apart from regular expenses like rent, food, electricity bill, credit card bills, EMIs, etc., there are many additional expenses that crop up every month.

In the long term, adding another permanent recurring expense may not seem worthwhile to many. Nonetheless, you must put aside some money in at least one retirement investment to take care of the future.

Here are some tips to save up for investment in a retirement account:

  • Planning expenses: A good trick is to chalk out a plan for your expenses and try to stick to them. Planning and having an estimate in your mind helps in sticking to monthly limits and discouraging overspending.
  • Start small: If a sizeable deduction is not feasible right now, you can start by investing small amounts and increasing gradually. This will help in reaching your financial goals eventually. You can further increase the investment amount as your income increases over time. This will help you to stick to a plan and build a nest egg to take care of future uncertainties.
  • Tax benefits: If retirement plans are started early on, you can save substantially on taxes, as many retirement plans offer tax benefits under section 80CCC of the Income Tax Act in India.
  • Seek help: If you are unsure about how much to invest each month to reach your desired financial goals for the future, seek the help of financial advisors who will select the best plan for you.

Why We Should Start Retirement Plan Early

It’s never too early to start your retirement planning, The best time to start is as soon as you start earning, which is, in all probabilities, your 20s. It is a well-known fact that most stable investments give a good rate of return in the long run. Investing for the long term early on allows you to take advantage of compound interest.

Let us consider the case of a 30-year-old company executive earning an income of ₹24,00,000 annually. His employer offers him an annual increment at the rate of 4% each year. He has 30 more working years left for retirement.

He is investing 4% of his income into a retirement plan on which he earns an annual return of 8%. If he starts investing today, he will have approximately ₹1,76,75,520 when he retires.

However, if he decides to wait for 5 more years to start investing, he will earn approximately ₹1,31,90,240 if we assume that salary, increment, return, etc. remains constant. Waiting for five years will cost him nearly ₹44,85,280!

A smart investor shall therefore choose to start investing early on and save a decent amount of money.

A small contribution now (in our previous example ₹8,000 only monthly) will help you to earn a sizeable amount at the time of retirement. This will help in achieving your retirement goals, like a foreign trip, or that dream car.  

How Does Compound Interest Work?

Compound interest is popularly called “earning money on your money.” In simple words. compound interest helps in earning more money on investments by reinvesting them to earn even more.

In the case of retirement plans, the principle of compound interest helps in earning even more by the time you get your proceeds.

Thus, you can gain more from the power of compound interest along with the benefit of tax deferral, i.e., pushing tax payments to a later period. Tax deferral, along with compound interest, multiplies your earnings because instead of tax deductions, the amount remains in the retirement account and contributes to earnings.

Starting an early investment in a retirement fund enhances the compounding effect by a large margin. You can use an investment calculator to find out the exact returns that a retirement plan will earn you on desired monthly/annual contributions at a certain rate of return.

Summing Up

A good and timely retirement plan is like planting a Mahogany tree forest, one tree at a time. It will take time and care but will earn great returns at a certain point in the future. To summarise, here are the benefits of starting your retirement plan early:

  • Planning your expenses: A retirement plan is a good investment. Instead of spending your money on unfruitful purposes, a retirement plan helps in putting money to good use and earning immense benefits in the future. Starting early means you can save much more money.
  • Coping with uncertainties: Even though you may be well financially secure now, you cannot predict the future. An early retirement plan can give you more income and benefits to cope with any kind of financial uncertainties that you may face in the future.
  • Tax benefits: Many retirement plans offer diverse tax benefits. The earlier you start, the more diverse the retirement plans available along with the tax benefits.
  • Advantage of compound interest: Investing early means a larger investment corpus, which in turn helps take advantage of compound interest and grow your earnings exponentially.
  • A comfortable retired life: If you can earn more from your retirement plan, it simply means that you can live a comfortable, worry-free retirement life without being a burden to anyone. Clear retirement goals and a suitable savings plan to achieve the goals will set you on the path to financial security during your sunset years. Early investment will multiply your earnings by a huge margin and allow you to enjoy your current lifestyle even after you are not actively earning. To find and select the best retirement plans, visit koshex.
  • FAQs:
    1. Why should we start investing in retirement plans early? An early start ensures that the benefits are multifold. Compound interest accelerates the pace at which your investment multiplies to give you sizeable returns at the time of retirement.
    2. Which retirement plan is the best for me? There are many good retirement plans available such as NPS, Kotak Mahindra retirement plan, HDFC retirement plan, etc. Visit find one best suited to your requirements.