To have your retirement years be ‘golden’ years, it’s crucial that you start with retirement savings from an early age. India does not provide any retirement benefits, so the onus is on you to build a retirement fund. To an extent, retirement investment schemes like employee provident fund, national pension scheme, etc., can help to build a retirement corpus that can coverpost-retirement expenditures for you if you are salaried, but in caseyou are a self-employed professional, you must look for alternatives.
Based on when you start investing, there are various investment avenues that can assist you to form adequate retirement savings. The earlier you include your retirement goals in your financial plan, the faster you may build your retirement corpus. This can assist you to be a self-sufficient senior citizen who can take care of all your expenses postretirement, as opposed to being an individual dependent on your family members or children. So, how do you do that? Let’s find out.
Tips to help youbuild an adequate retirement corpus
Begin investing early
Many consider retirement as a distant reality, which is why they don’t think about starting with retirement savings until the later stages of theircareer. What they miss understanding here is that investing early allows one to benefit from the power of compounding, which in turn can help in forming a bigger retirement fund with a smaller contribution.
For example, consider if you start to invest in a mutual fund through a Systematic Investment Plan (SIP) at the age of 25 a sum of Rs 2,000 every month at a return rate of 12% p.a., you would be able to build a retirement fund of around Rs 1.30 crore by 60 years of age. However, if you begin investing at 50 years of age, you will need to make a monthly contribution equalling Rs 56,000 in the same mutual fund generating the same return for forming the same retirement corpus equalling Rs 1.30 crore.
Consider inflation
Inflation is the increment in the prices of goods and services, which lowers your purchasing power. For instance, if you spend an amount of Rs 30,000 per month at the age of 25 to meet your fixed expenditures, you will require Rs 2.31 lakh every month at the age of 60 years for maintaining the same lifestyle, assuming the inflation rate is 6%.
Thus, ignoring inflation may mean saving way less than what you would require years later. It may negatively affect your post-retirement life and force you to continue working to meet your regular expenses. To counter inflation, you must take the assistance of online retirement calculators to figure out the monthly investments required to form a sufficientinflation-adjusted retirement corpus.
Invest in equity mutual funds
Generally, conservative investors tend to avoid equity mutual funds when saving for post-retirement years. Instead of equities, preference is given to fixed-income products like fixed deposits, public provident funds, etc. Remember that the return rate yielded by these fixed instruments has no potential to overcome inflation.
Here, equity is a better choice for meeting your long-term goals like building your retirement corpus. This is because equity investments can earn returns that are higher than fixed-income instruments and the inflation rate by a wide margin over the long term. Thus, for building your retirement corpus, you must prefer opting for equity mutual funds.
Buy adequate health insurance
Many, during their work life, avoidpurchasing individual health insurance and are content with their employer-linked health policy. However, remember that such health insurance expires once you leave your organisation, which leaves you uncovered during your retirement years.
Given the constant increase in healthcare expenses, the need for purchasing sufficient health policy cannot be ignored. As age is an important parameter that determines your insurance premium, purchasinginsurance late incurs a higher premium and even makes you wait for at least two years to claim the policy if you have any pre-existing disease. Hence, purchasing health insurance early assists you to meet the required waiting period at considerably lower premiums.
Ending note
Forming a solid retirement corpus is a crucial financial goal that you must include in your financial plan, no matter how young you are right now.And when designing your financial plan for retirement, ensure to follow the above-mentioned important retirement tips.