It is Monday morning, and the sun is up. Everyone in the city is bustling about, hoping to reach his or her offices on time. But, no more Monday blues for you; you simply get out of bed, enjoy the sunshine and smell the roses in your front yard. The 9 to 5 grind is behind you because you have comfortably retired. The day stretches ahead of you, and you can do anything you please.
Now that you have shaken yourself out of the reverie, you need to ask yourself a very pertinent question, have you saved enough for your retirement?
Retirement is fun but can be expensive
Imagine you didn’t work at all for a year. On the one hand, you would have a lot of time to do what you want. But, on the other, you may not have an active source of income. You would have to depend on your savings and other income to manage your expenses. Extrapolate this scenario to 20-30 years, and that’s retirement for you. During retirement, you have all the time in the world to explore your hobbies and dreams. For instance, you may want to travel the world with your spouse. That can be made possible if you have created a separate corpus to achieve this goal. In addition, you need to consider expenses like groceries, utility bills, medical care expenses and any emergencies. By planning, you can create substantial savings for your future.
Planning for retirement
How much money do you want to save for your retirement? The answer to this question can vary from one person to another because it depends on various factors like current income, expenses, lifestyle choices, medical issues and also on how you would like to spend your retirement. But ideally, you want to ensure that your retirement savings outlive you. In other words, you don’t want to find out mid-way that your retirement fund is empty. This is why, it is vital to create a long-term retirement plan from an early stage.
Another critical reason to plan early for retirement is to have adequate time to build your corpus. Imagine you are 50 years old. You want a retirement corpus equal to Rs. 3 crores. This means you have just 10 years to achieve this goal. This can put immense pressure on your finances, and in the quest to attain such a large sum in a short time; you may end up making rash financial decisions. But, if you have planned for your retirement when you were 30 years old, you have an extended period to achieve the goal.
Mutual fund investments
A simple (and easy) way to achieve your retirement goal is to invest bit by bit in mutual funds through a Systematic Investment Plan (SIP). Many fund houses allow you to invest just Rs. 500 each month. This gives you the freedom to invest for your future without burdening your monthly budget in the present. Moreover, since retirement planning is a long-term game, you can afford to experiment a little and take a few risks.
For example, investing in equity mutual funds may be a risky move when you are close to retirement. But, when you start investing at an early age, the market risk not only comes down, your returns multiply manifold, over time due to the compounding effect.
Every rupee counts
Many people think that they can only invest when they have a lot of money. That’s why they wait until they are close to retirement before they start investing. This is not the right investment strategy. Instead, invest in smaller amounts right from the beginning of your career.
Here’s a simple example: Let’s assume you want to create a corpus of Rs. 3 crores for your retirement. If you were 50 years old, you would have to invest Rs. 1 lakh per month in a fund that offers a 15% annual rate of return to create a corpus of Rs. 2.8 crores. This could put a great deal of stress on your monthly budget.
But, if you had begun investing at the age of 30, you would need to invest Rs. 8000 per month (at 13% annual returns) to earn Rs. 3.1 crores!
You may not know what the future holds for you (unless you are a time-traveller) but it is always better to be prepared for it. Make a long-term plan for your retirement and invest wisely. And when it is time to retire, you can bid goodbye to your job without any worries.