To achieve their life goals, millennials are increasingly looking to pursue worthwhile investment opportunities. Still, there is often very little attention paid to long-term financial planning, especially in their 20s, because they tend to focus on short-term objectives. This is a lost opportunity that, if seized, could help them accumulate a retirement fund to realize their life goals, like taking a globe-trotting vacation or purchasing a luxurious retreat by the sea, or just living a comfortable, financially secure life.
Retirement planning entails preparing for your future today so that you can meet all of your life goals and objectives on your own. Setting your retirement goals, estimating how much money you will need, and investing to build up your savings are all part of this process.
Retirement plans, often known as pension plans, are investment schemes in which individuals can invest a portion of their income to accrue over time. The only goal is to offer people financial security after they retire. In addition, they allow you to live with dignity after you have retired without sacrificing your standard of living. With the cost of living and inflation constantly rising, retirement planning has become an increasingly important part of our life.
Retirement planning has numerous advantages, from financial to personal gains (such as inculcating financial discipline). Here are the four reasons why you should start planning for retirement as soon as possible:
- Early planning and saving for your retirement can help you profit from the power of compounding, which can significantly increase your returns.
- The tax benefits you can avail of from retirement planning are another significant advantage. These benefits apply to the accumulation phase and the latter period of collecting returns after retirement. Premiums for retirement plans are tax deductible under Section 80CCC of the Income Tax Act of 1961, subject to certain conditions. Furthermore, when you reach vesting age, you can receive up to one-third of your retirement savings as a tax-free lump sum under Section 10(10A) of the Income Tax Act of 1961, subject to certain conditions.
- Retirement planning ensures that inflation does not ruin your ideal retirement lifestyle. By investing methodically, you may ensure that you have enough money to fulfil all of your objectives and aspirations.
- Because of increased life expectancy, you will need to save for a long retired life. Prudent retirement planning is vital to enjoying a long and prosperous retired life with enough financial assistance.
Compounding refers to profiting from gains or interest on the initial investment. Simply put, the concept of compounding includes making money through earning ‘interest on interest.’ Individuals who begin investing early will benefit from compounding returns, which will cause their investments to increase exponentially until they retire.
For example, Priya, 25, begins investing ₹ 5,000 a month toward her goal of retiring comfortably. If she invests for 30 years, her retirement corpus will be ₹ 75.01 lacs by age 55, assuming an annual return of 8%. On the other hand, Anil begins investing ₹ 10,000 monthly towards his retirement corpus at age 35. If Anil receives 8% yearly returns on his assets, his retirement corpus at the age of 55 will be ₹ 59.29 lacs.
Priya was able to produce a more sizable corpus for her retirement (₹ 75.01 lacs) despite a lower investment (₹ 18 lacs) because she began early, which gave her money more time (investment period of 30 years). Therefore she benefited from the power of compounding.
Starting your retirement planning in your 20s can be done by following these steps:
To begin, it is critical to determine the retirement corpus required for a stress-free retirement. Retirement funds should consider current expenses, future medical bills, life expectancy, dependents, and the expected inflation rate. Online retirement planning calculators are also helpful in estimating the required corpus for retirement.
The second phase in retirement planning should be to estimate how long it will take to establish the retirement corpus. To accumulate a larger corpus, it is prudent to begin saving for retirement early in life.
The ideal method to ensure one’s future is to select a pension plan that helps one fulfil their retirement goals while also considering inflation and risk tolerance. Another essential step before deciding on the best investing strategy is researching the products online.
Medical costs are another essential element to consider while budgeting for retirement. Unfortunately, healthcare costs rise in tandem with one’s age. As a result, medical care and prospective ailments must be carefully considered while determining the corpus required for retirement.
No matter how large one’s retirement funds are, planning for a consistent post-retirement income is vital. This will prevent your retirement fund from depleting too quickly. A portion or the entire retirement fund can be utilized to purchase an annuity or a whole-life ULIP that guarantees a monthly income.
Finally, regularly reviewing one’s retirement fund might help one stay focused on retirement saving goals. An individual’s lifestyle and goals change as they progress through life. As a result, continually assessing the investments made for the retirement fund is critical.
You may only cherish your retirement if it is carefully planned to ensure that you and your loved ones live a comfortable life after you retire. And for that, a significant corpus is required, as are the tools that will allow the corpus to last longer. As a result, choosing the right retirement plan that can help build retirement savings during the accrual phase and provide positive returns when the time comes is critical.