If you're in your early twenties or thirties, chances are that you are focussed on your present needs rather than future investment goals. Millennials often feel that retirement is a far-fetched idea and that it will have a late onset. But if you seek a financially sound retired life, you need to start planning and saving early for the time when you will not be working. In fact, adulthood is the perfect time when you can sow well so that you can reap a rich harvest later.
Start retirement planning early
Financial experts suggest that it is important to be prepared to handle retirement head-on, whenever it happens. For this, you need to start investing early - the sooner, the better, they say.
"Making a long term financial plan will definitely help in achieving goals. There are lots of avenues where one can invest but before investing in any plan it is important to first create a risk management fund so that in case of any unfortunate incident, you don't have to touch your savings or investments," said Amit Kachroo, Managing Partner, Aaneev Wealth.
Three-step guide for retirement planning
Rahul Agarwal, Director Wealth Discovery/EZ Wealth, summed up retirement planning in three words: Accept, Analyze and Invest.
You need to first accept the universal fact that one day, you will have to retire. If you have a stable salary today, you will lose it one day by the time you reach 60 years of age. When developing a retirement budget, you need to be especially careful towards estimating monthly retirement budget, healthcare costs, emergency fund requirements, and for obligations such as marriage, higher education of children etc.
Think hard and analyse how you can set aside a monthly saving amount for your retirement age and make a proper plan for investing towards that goal.
"Due to the power of compound interest, the sooner an individual starts saving, the less principal they will need to invest to end up with the amount they need for retirement," said Mr Agarwal.
What are the investment options to choose from?
After you have made an analysis of your surplus funds and savings, here comes the real job: it's time to invest. Maybe you often get confused thinking: "what are better - mutual funds or public provident funds? Do tax-saving plans help in maximising my returns or plainly cut down on my income tax outgo?"
Experts suggest that you should have a higher exposure towards riskier assets in your young age to maximize returns early on in life.
"As life progresses one's appetite and capability to take financial risks gets considerably depleted due to additional responsibilities that come along as life progresses. So you should create a diversified portfolio of different financial products like direct equity, mutual funds, fixed deposits, Public Provident Funds (PPF), monthly pension plans, term insurance, health insurance, real estate, and gold," said Mr Agarwal.
The key is to make proper asset allocation.
"Stocks of those companies should be purchased which have a good management, give good dividends - in short buy growth-oriented stocks. Invest in a good equity mutual fund every month. Take the SIP (systematic investment plan) route wherein you invest every month and enjoy compounding returns," suggested Mr Kachroo.
If you get a bonus, 50-60 per cent of that amount should also be invested. This will boost your retirement savings, he suggested further.
So do not wait to hit 40 or to accomplish certain professional/ personal goals to start investing for retirement. Your time starts now!