Retirement can be challenging, painful,and difficult if unplanned. It is, therefore, advisable to start early. If the start is early, the investment amount can be low periodically, without causing a pinch and the corpus at the end is substantial. The active working life is around 35-40 years. With the average life expectancy around 72.6 years (Source: UN estimate of global average life expectancy for 2019), the source of funds to have a peaceful life after retirement is not ignorable.
Many financial goals like buying a home, marriage, child’s education, vacations, etc., are usually planned and achieved during working life. However, you must include retirement as a goal and work towards it consistently. If not better, leading the same standard of living during this golden period is a possibility if planned for it.
Need for a retirement plan
When it comes to planning retirement, there is a tendency to postpone it. The societal structure has changed with increased urbanisation and nuclear families. Earlier,retirement was dependent on the next generation. Given this, it becomes more imminent that the retirement plan is implementedearly on. India’s social benefit schemes are skewed,favouring government employees. They enjoy pension and medical facilities post superannuation.
Although there are provident funds and pensions schemes for the rest,you need to augment the retirement plan in a focused manner.Inflationis a silent and invisible member that eats into the savings and needs consideration. To counter it, create an investment plan that providesreturns higher than inflation. Medical exigenciesdevelop a gaping hole in your savings.
Check whether to have a separate corpus for medical emergencies or have a common corpus pool like Mutual Funds. Early planning is not unusual since this corpus can be pretty substantial.
Corpus through Mutual Funds
While pension plans are available for retirement, Mutual Funds have a distinct advantage of having an Equity element if the start is early. Young peopleinitially expose themselves to higher risk and gradually shift to lower risk and stable returns. Theflexibility of Mutual Funds when age is an advantage offers good impetus to a faster corpus target. Moreover,Equity Funds are diverse and invested across market caps and sectors to mitigate risk.
Mutual Funds have different schemes to choose from. So, make the best possible choice suiting your needs.
How to go about it?
The best way to create a retirement corpus is through a systematic investment plan (SIP). When the investment term is longer, nothing beats SIPs. They are small investments at regular intervals that develops into a habit of savings and investments. It provides the benefit of averaging during times of falling marketsAlthough it averages short term fluctuations, the long-term benefit outweighs the short-term fluctuations.
Mutual Fundscome with different SIP schemes as well. Carefully assess the SIPs and choose the one best suited. Let us understand the working of a SIP. Assume that Rs.5,000 monthlygets invested in a SIP, offering an annual return of 12% for 30 years. At the end of the term, the amount will be around Rs.1.76 crore. This is the power of compounding. Consistency is the key. Patience and perseverance are virtues in this game of retirement.
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