Although it is true that no one wants to think of old age, we are all moving in that direction, slowly but surely. And before it’s too late, people should come to a realization that they need to start saving for their retirement life. For some, retirement planning is simple – you work throughout your life, you save some you spend some and you spend your retirement with what you have saved. However, this formula may not work in the current scenario as the interest rates in India have hit an all-time low. It is almost impossible to build a commendable retirement corpus when you are getting 4%-5% interest on your investments.
Hence, in contemporary times it is prudent that we take an approach towards retirement planning that may allow us to retire rich.
Here is your complete guide to retirement planning –
Decide how much you need to save for retirement
It is difficult for a lot of people for us to comprehend the fact that they have to plan their retirement. It can get a bit overwhelming for some as they wonder whether it is necessary to save for a time you are uncertain about. And as they spend time contemplating, the thought of saving for old age eventually fades away and people end up saving nothing. Do remember that retirement is an age when your primary income will come to a standstill. The only money you will be left with is what you have saved over the years. And you need to make sure that you have enough corpus for you to suffice for the next 20 years at least. Hence, investors must keep a realistic target and decide how much money they need to save to live a stress-free retirement life.
Do not wait. Start investing today
The biggest mistake that many do with retirement planning is that they start at a later stage in their lives. Here is a simple example that illustrates the consequences of starting retirement planning late –
Let us assume you wish to build a retirement corpus of Rs 3 crores. You are 45 years old and have 15 years in hand before retirement. You invest in a retirement scheme that offers a 10% rate of return. Now to achieve this corpus in 15 years you will have to make a monthly investment of Rs 72,381. Now, if you started your investment journey at the age of 30, your investment horizon would be 30 years, and assuming the same rate of return (10%), you could have earned a corpus worth Rs 3 crore by just investing Rs. 13,272 every month. That is 6 times less than what you will be investing if you start late.
Invest in mutual fund schemes
Looking at the horrible state of interest rates, it makes more sense to invest in market linked schemes like equity mutual funds or solution oriented schemes like retirement mutual funds. Mutual funds may not offer guaranteed returns, but they have the potential to outperform every other type of conservative retirement scheme. Retirement mutual funds are basically hybrid funds whose portfolio consists of both equity and debt related instruments. Also, if you invest for a longer duration through the Systematic Investment Plan (SIP) option, you can mitigate the investment risk and maximize returns through the power of compounding and rupee cost averaging.
Savings alone are not going to help you in your old age as money tends to lose its value over the years due to inflation. Investors should consider investing in retirement mutual fund schemes as this might be their only way to build a commendable corpus over the long haul.