It is okay to start small for the long-term goal of retirement or financial freedom. However, one must increase the investment amount every year. This can be a fixed amount, a fixed rate of increase, or can linked to one’s annual increments
NEW DELHI: Sooner or later everyone retires, either by choice or necessity. Therefore, planning a retirement fund is a must.
Take a look at these six essential tips which can help you plan your retirement savings.
1. Start early
Many believe retirement is a distant reality, planning for which can be pushed to a much later stage. Start setting aside money early for retirement to creat a sizable corpus, with lesser but more frequent investment values. Give your savings time to mature and reap the benefit of compounding over a longer period. For instance, if you are 35 of years age and you start investing Rs10,000 per month for the next 25 years, by the time you reach retirement at the age of 60, you will be able to accumulate a corpus of ₹95 lakh approximately (assuming an 8% average rate of return).
2. Increase your savings
As your income increases, try to save more. “Lifestyle inflation eats into the savings available for retirement. Set some corpus aside for emergencies. Ideally, your emergency fund should contain at least 6-12 months of your monthly expenses,” said Prateek Mehta, co-founder and CBO, Scripbox. He further added, “In fact, we conducted a survey to understand the pandemic’s effect on financial well-being and learnt that 43% out of the 600+ respondents had prioritised saving and investing in their retirement corpus, in the backdrop of the pandemic.”
3. Incrementally increase your investment
It is okay to start small for the long-term goal of retirement or financial freedom. However, one must increase the investment amount every year. This can be a fixed amount, a fixed rate of increase, or even be linked to your annual increments.
4. Take calculated risks
“Not taking a risk in your investments is the biggest risk of all. You need to ensure that your investments grow at a rate faster than inflation,” said Mehta. “This can happen if you allow for slightly bumped allocation to growth assets like equity. While it does increase the risk in your portfolio, you can invest in some research or a good advisor and make the right choices in managed products like equity-oriented mutual funds,” Mehta added.
To take a calculated risk, you must also try to give some exposure to debt-related instrument.
This is an area that needs attention in early years. A person should try and buy additional health insurance cover for himself and immediate family, in spite of a health cover from employer, to ensure adequate health coverage in your golden years. Besides, to secure a family’s future in case of sudden demise, having a term insurance plan is a must. “Make sure you have adequate life insurance coverage. Generally, one should have a life cover of at least 15 times of one’s income. Make sure there is proper nomination in the life insurance policy,” said Sanjiv Bajaj, Joint Chairman & MD, Bajaj Capital.
6. Remove the junk
“Pull out all those forgotten investments and insurance policies, get rid of those which give you low return or are proving to be too expensive,” said Mehta. For instance, if you already have a hefty equity mutual fund or stock portfolio, then spend some time cleaning it up and getting rid of underperforming securities, funds, etc.