- If you start early, your money gets more time to grow
- Equities have an ability to beat inflation, and outperform all asset classes over long term
- It is essential to cover your health too in your retirement planning even if you are fit today
In your 20s, saving money for retirement doesn’t strike at all because it looks like a distant goal. Once you hit 30s, you start to earn better and wish to acquire milestones like a bigger car or better apartment. By the time you start planning your retirement, you might be close to 40. And at this age, you are in no position to make any mistakes, whatsoever.
So, here are three things that no one will tell you about retirement planning which might help you create more wealth and make fewer mistakes.
You may not make up for the lost time
Do not let retirement come at the end of your financial goals. You might want to focus on intermediate goals like marriage, house, car, and education before planning for retirement. The right approach is the exact opposite. The logic is simple. If you start early, your money gets more time to grow. If you start very late, you miss out on this benefit, called the power of compounding, which can increase wealth exponentially over time.
Take an example: If you start investing Rs 3000 per month at 20 and earn 12% returns every year, your retirement kitty will grow up to Rs 5.94 Crore at 60 years of age. But if you start at 30, you will be able to save just Rs 1.76 Crore. Look at how beautifully the additional ten years have contributed to your financial well-being. This corpus could help you pursue entrepreneurial interests or other pursuits close to your heart once you retire. Also, studies have shown that those people, who do not invest well in time, tend to make riskier investment decision later in their lives.
You are ignoring inflation
Inflation is such a demon in the era we live. For those who ignore it, it is an even bigger demon. Inflation reduces purchasing power substantially. Let’s assume that the rate of inflation is 7%. This means that today’s Rs 1,00,000 will be just Rs 13,000 in next 30 years. Simply put, things will become costlier, and your buying power will reduce. If you ignore inflation, you will save much less than what you will need, going forward. The solution is to build a diversified portfolio with assets, which aim to beat inflation and offer long-term wealth creation. Experts believe equities have an ability to beat inflation, and outperform all asset classes over long term. If you ignore the daily volatility and simply look at the long-term, Indian equities has created substantial wealth for investors.
Your health may not always be with you
The present day and age, we all lead a hectic lifestyle leaving little time for us to reflect on our health and wellbeing. So it is essential to cover your health too in your retirement planning even if you are fit today. Build a suitable portfolio of insurance to include your health and life. Such policies will help you cover the cost of medical aid and related expenses. And in case of uncertainty, it will ensure your family remains protected.
Remember to invest as early as possible to ensure lower premium, better coverage. Even if you are several years away from retirement, you should not avoid buying a health insurance, if you don't have one. Opt for life insurance riders to extend the coverage while keeping the premium low.
Retirement planning, therefore, should be your priority. It is also an extensive process that requires planning and persistence of years. After all, we all want to retire comfortably. With some homework, an investment plan and some savings, one can successfully achieve retirement.