- It is critical to choose the right investment avenues and calculate the target corpus in advance
- It is also important to start early, invest consistently, and review investments regularly
Amidst the hassle of busy life, most of us miss out on our hobbies or pursuits that would bring us joy. Retirement is the ideal time to indulge in those activities without having to worry about finances. It is imperative that you build a sufficient retirement corpus, so you do not have to compromise on your standard of living. Plan your retirement judiciously with five golden rules in mind:
1. Calculate the retirement corpus: It is essential to calculate the corpus you would need after retirement so that you can invest and plan your budget accordingly. For example, if you need 24,000 rupees per month for your expenditure today, you would need around 1.44 lakhs per month (if you retire 30 years from now and consider a constant 6% rate of inflation) Hence, it is wise to calculate sufficient amount of money required for the future.
2. Start investing monthly: Experts believe that you should invest 10% of your monthly income towards retirement. Regularly investing a certain percentage of your income allows the growth of your funds by the power of compounding. For instance, a monthly investment of Rs 10000 at 9% would grow to more than Rs 19.5 lacs in 10 years, Rs 1.80 Cr in 30 years and 4.7 Cr in 40 years. So, you can benefit from the power of compounding over the long term; i.e., your money earns money on the interest made every year, thus compounding your money.
3. Choose your saving and investment avenues wisely: Multiple savings and investment options are available in the market. Choose only the options you understand thoroughly and efficiently. Be wise and match your risk-appetite with the investment avenue. There are multiple debt and equity products to help you earn on your investment and create long-term wealth. Also, there are long term savings instruments like endowment and money back plans which provide the dual benefit of life insurance as well as savings.
4. Review your finances regularly: Analyze your portfolio on a regular basis. Reviewing your portfolio is imperative. There may be times that your investments may take an unexpected turn for the worst. Bonds and stocks can take a hit given the market conditions. Hence, it is indispensable to keep reviewing your investments on a regular basis. Suppose you wish to maintain your investment in equities, debt and cash are in the ratio of 3:5:2 make sure you stick to it. Every time you review your portfolio, keep track of this proportion and re-balance allocations accordingly.
5. Start early: It is crucial that retirement planning is initiated as early as possible because it offers the benefit of the power of compounding. It also gives the investors a reasonable amount of time to alter investments if necessary and thus choose the ones that suit their needs.
6. Stick to your investment plan: More often than not we tend to deviate from our investment plan to fulfill other goals. Ensure that doesn’t happen when you start financial planning for retirement. Your new dream car or a bigger house can wait but retirement planning cannot. Invest as much as you can afford to and invest in flexible plans, which ensure that you can alter your investment any time during times of dire need. Other than that, the financial goals for retirement should never be tampered with as they become a habit and in turn disturb the investment.