One of the first objectives of young professionals after entering the job market is to accumulate enough wealth that will help them to take care of their expenses at the time of retirement. Retirement is the phase of one’s life when they decide to exit the job market completely. Once someone has opted to retire, they also forgo the monthly income that they used to earn while working. So, to enjoy a comfortable life after retirement, it is of utmost importance for you to acquire enough wealth before you opt to retire. Investment plans are one of the ways you could acquire enough wealth for retirement.
Through investment planning, you plan your future expenses. While investing is the act of allocating funds, investment planning is the act of planning out the said allocation of funds. But a lot of people still don’t know why they should start investing. The main reason why you should consider investing is to accumulate wealth, which will take care of your expenses when you are not working anymore. Acquiring enough wealth is dependent on factors such as:
- When you are starting:
While investing you need to remember that the earlier allocating funds into investment plans, the more wealth will be accumulated in your investment portfolio by the time you reach retirement. Please remember that age plays an imperative role when an investor is considering investing for retirement.
- How do you manage your monthly expenses?
Managing expenses is a challenging task. If you are seriously considering investing as an avenue to earn extra income, you need to judiciously ascertain the necessary expenses. While it is understandable that you are tempted to buy an expensive collectable or splurge on expensive eateries, it will be better if you were to curb such expenses. Doing so will ensure that you will have enough balance in your account after money is debited from your account for investment.
How much to save for retirement?
Ideally, you should be aiming to save at least 15% of your pre-tax salary for retirement. Many financial advisors also recommend a similar pace for retirement savings. But if you are wondering where to allocate your funds, there are numerous investment options that will be available. To earn extra income, you could opt to invest in mutual funds or several variants. For example, by investing in hybrid funds, you could enjoy the benefits of investing in both debt and equity funds. These funds are extremely helpful for wealth creation for retirement.
The impact of time on retirement savings:
As stated earlier, time is your most powerful ally for retirement savings. Small amounts invested early in your career can grow substantially larger than even big amounts invested later in life. Even if you were not able to afford to set aside a part of their income for retirement, please don’t be discouraged from investing. Investing any amount for retirement positions you to benefit from compounding as soon as possible. For example, you want to save ₹2 crores by the time you retire, and you have opted for SIP. If you started at the age of 25, by the age of 55, you would have reached your goal by investing ₹8,500. With the help of a SIP, you could also opt to use the step-up feature. With the help of step-up, you could also choose to increase your annual investments.
Retirement planning is an important action that will help you to acquire wealth over time. If you feel like you’re behind with your savings, there are always ways to catch up and save a bit more. Don’t be afraid to ask for help as a financial advisor can help you review your current savings.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.