Imagine yourself spending quality time with your loved ones. Or maybe you are travelling the world, exploring new places and cultures that you never thought you would have the time or resources to experience. These are just a few of the many wonderful things that retirement can bring you. Yet, to live the retirement life of your dreams, you need to start planning for it now. The earlier you start planning, the more financially secure you will be in your golden years.
But, simply saving is not enough for retirement! It requires a well-crafted strategy, wise investment decisions, and regular financial assessments. Most importantly, you need to create a well-defined plan and be disciplined enough to follow it. On that note, here is a step-by-step approach to stay on track with your retirement plan, including important facts, mistakes to avoid, and strategies to ensure you have the post retirement life you deserve.
- Start early to leverage power of compounding
Starting early allows you to take smaller steps towards your retirement plan, and you won’t have to contribute larger amounts later in life. This approach is particularly beneficial due to the power of compounding. When you invest early, the interest earned on your investments is reinvested, leading to exponential growth over time.
For example, if you start investing Rs. 5,000 per month at the age of 30, assuming a 10% annual rate, your corpus can grow to approximately Rs. 1.13 crore by the time you turn 60. However, if you start investing the same amount from the age of 40, the corpus will only grow to Rs 38.28 lakhs. Hence, it is always better to start early to get the benefits of compounding.
- Calculate your retirement corpus
Retirement corpus refers to the amount of money you will need to live comfortably after retirement. It includes expenses on healthcare, accommodation, food, and travel costs. You should also consider inflation as expenses tend to rise over time. Many online retirement calculators can help you with these calculations and understand the impact of current expenses and inflation on your retirement savings.
Based on the results, you can make investment in mutual funds, ETFs, stocks, and other options strategically.
- Cut down on unnecessary expenses and plan to clear all debts
To reach your retirement goals, you need to manage your finances wisely. So, create a budget and prioritise your expenses. Revaluate your needs vs. want, cut down on non-essential expenses, and find ways to reduce high-interest debts. This way, you can free up funds that can be invested in a retirement plan for long-term growth.
- Consult a financial planner to create a personalised portfolio
While there are many investment options, the right portfolio differs from one investor to another. A professional financial planner can strategize your retirement investment plan, considering your goals, risk profile, age, and financial position.
For example, an aggressive investor could have a higher allocation to equity mutual funds than a conservative investor, who could have a higher allocation to fixed income assets. Also, diversifying your investments across different asset classes like equity, debt, and other retirement schemes can help in managing risk and obtain higher returns over the long term.
- Plan retirement with automated contributions through an SIP
A systematic investment plan (SIP) helps you automate your contributions towards your retirement plan. It offers a structured way to invest in mutual funds with small amounts that can grow over time. An SIP also gives the benefit of rupee cost averaging over the long term, thus reducing the impact of market volatility on your retirement savings.
To wrap up
Planning for retirement is crucial, but it is equally important to stay on track. Try to avoid the temptation to withdraw from your retirement savings for unexpected expenses, and instead, create a contingency plan to prepare for emergencies. Consider life insurances as part of your retirement plan, as they can offer additional protection and financial stability for your loved ones. Implementing these strategies into your retirement plan can help your savings and investments remain intact and continue to grow over time.
No matter what you are investing for, make sure you are taking the necessary steps to protect your money. The infographic below has some tips for the best cybersecurity practices to protect what you invest.
Provided by Chicago Partners – providing wealth management for high net worth individuals