We all enjoy making future plans and it's wise to make plans well in advance for everything. But not everyone has the same propensity when it comes to retirement preparation.
Therefore, it should come as no surprise that a retirement poll revealed that over 78 percent of Indians had not even begun to plan for their retirement.
We should not disregard retirement even though it is one of our most improbable financial objectives. Instead, an early start for this far-off goal makes it simpler to manage than one that would arrive quickly.
Here are a few explanations for why it's important to make plans for your golden years, especially while you're still working.
Increasing life expectancy
The amount of time people spend not working is growing as life expectancy rises. After 30 years of employment, someone who retires at age 60 could continue to live for another 30 years or longer. The 30 years of earning time feeds the 30 years of non-earning phase, that's what it means! Essentially, this follows the 30-30 rule for retirement planning.
Early Retirement
People who plan to retire early are increasing. However, doing so would need for a larger retirement corpus. Determine a sensible retirement age. It does not follow that we will retire at age 60 just because our earlier generation did. Keep in mind that there is a concept known as job creation and the demand-supply for work. Jobs and organisations are becoming younger every day. By the time we are 45 or 50, we might be required to enter retirement. Be honest with yourself about your retirement age as a result.
Cost of Living
The expense of living is rising every single year. Imagine this: If annual inflation is 5 percent, household expenses of Rs 50,000 per month will be close to Rs 1.70 lakh (3.5 times) after 25 years. Even in the years following retirement, inflation will be present, but it will be more pronounced because there won't be any income. Consider the value or purchasing power of a crore of corpus after 15 years of inflation of 5% if one feels comfortable with it. You can expect to receive roughly Rs 48 lakh for every Rs 1 crore!
Delayed start to your retirement investments could cost you dearly. It has two different aspects: first, early savers have to put in less money, and second, they stand to benefit more from compounding than late investors. A person who invests early can build a similar corpus with 50–75% less savings. Furthermore, profits (the share attributable to interest) account for approximately 90% of wealth, whereas for investors who start later, this percentage drops to 75–85%. Compounding makes it possible for this to happen.
Along with getting a head start on your investments, picking the right tool is crucial. Invest in equities if you have at least ten years until retirement. Previous research has demonstrated that over the long run, equities have outperformed all other asset classes, including gold, debt, and real estate, in terms of real return adjusted for inflation. Debt-asset management plays a crucial role in retirement planning. As one gets closer to retirement, start de-risking investments to move money from equities to less volatile debt assets in order to preserve the capital accumulated.
You may optimise your NPS account to make it work for you forever once you are familiar with the features and fund possibilities. By being aware of them, you may make the most of your NPS
Steps for a comfortable retirement
- Make an early start on your retirement savings.
- Calculate the monthly savings amount needed to build a retirement fund.
- Set up money for a retirement portfolio and create one.
- Decide to invest mostly in equity up until three years before the target.
- Use the SIP strategy, and if you can, increase the SIP amount as you get closer to retirement.
- With around three years left till retirement, derisk your money.