If someone has to constantly remind you to plan for your retirement, it simply means that you do not take your future seriously. Planning for retirement is a serious business, which is why you must start planning early. Starting early means that you have more time to plan your retirement corpus and enough earnings in hand to start investing. More than that, starting off early means that you can take some necessary risks to earn returns that you can then re-invest in some debt component to earn stable returns during your old age. These debt funds can include fixed-income deposits, senior citizens’ deposits and gold bonds. This is also important considering how difficult it can be to outlive your resources. You must start planning for retirement as soon as you earn your first salary. A responsible attitude towards money today will ensure a financially secure future.
While you are planning your retirement corpus, the focus must be to invest in options that not only preserve your capital but also ensure that it gives decent returns beyond inflation. When it comes to planning your finances for the future, your entire strategy must revolve around the idea to earn, save, grow and preserve.
Planning at different life stages
How much you earn and invest today is just a meagre percentage of what you will be earning and investing tomorrow. Needless to say, your earnings today would be far lesser than what you would be earning 20 or 30 years down the line. But should that deter you from saving and investing for your future? If you are not sure of whether you can save enough to invest today, how do you anticipate saving and investing later at an age when you might be burdened with many more responsibilities.
Also, your retirement planning today would not be the same as a decade later. Roughly 10 years down the line, you would be earning more but also would be spending more on responsibilities without expecting the burden of inflation to spare you. However, the aggression and passion that you have today will allow you to take some risks that will surely pay off as rich dividends later. This is because, with the power of compounding, you will first earn interest on your earnings post which you will earn interest on your interest income too. However, to feel the compounding effect on your returns, you must be willing to stay invested for a prolonged period, say 15-20 years.
Being young and aggressive means that you would put a large chunk of your money into aggressive funds or financial instruments that are highly risky. Furthermore, you can invest some money into gold as an essential hedge against inflation.
Getting insured early
Buying insurance is important to financial planning. So, you can consider buying health insurance early in life. Since you are less prone to sicknesses that would necessitate hospitalization, insurance companies would charge you far less premiums. This insurance policy when renewed year after year lends you a coverage big enough to pay for your hospital and treatment bills.
Life is uncertain, which means that you take the charge of securing your loved ones’ future quite early. You buy life insurance with a cover equivalent to 10-12 times your annual salary. The premiums charged would be less considering your age, which means that you pay for a life insurance policy, sans your hassle. You may then consider buying additional policies later depending on your family’s lifestyle and possible monetary needs in future. Also, this life insurance plan on maturity can help you pay for your children’s higher education and marriage.
Planning at different phases
You must focus on earning more during the first phase of your life. This means you can take up a second job or a secondary income source to make way for more money in your bank accounts. Then use this money to invest wisely across different instruments depending on your financial goals and risk profile.
Use the second part of your life to grow your money. Now that you are aware of various investment options, you can broaden your investment horizon and allocate your money across different instruments including stocks, equity mutual funds, debt funds, gold, exchange-traded funds, etc. If you are unaware of how the market works, the best way out would be to invest in index mutual funds that are passively managed and, hence, free from fund manager biases. Alternatively, you can put your money in Nifty BeEs that moves and grows in sync with the market. This investment planning would go a long in funding your retirement plans in the future.
The third phase requires you to be a bit slow and prudent, which means that you may opt to shift your earnings to less risky options like debt funds or fixed-income instruments. The idea behind this is to save what you have earned to date.
Preservation is the key to all these years of struggles and hassles to keep yourself afloat. Enjoy your retirement while relishing all the returns that you have earned on your deposits and investments. However, for your retirement to be free of financial worries, you must plan early in life. Time is the deciding factor behind how you foresee your retirement and how you would like to spend the golden years of your life.
