Once saving money becomes a habit, gradually increase the saving percentage and start investing
Retirement planning. How necessary is it? Or the more pertinent question would be - How urgent is it? Can it be postponed for tomorrow so that you can enjoy that international trip this year? What will be its impact in the two scenarios? Many of us believe that we should enjoy life while we are young since there is plenty of time left for planning our retirement. The typical cycle is to start corporate life, earn money, and spend on ourselves and on family. This continues for years and becomes a habit. As salary grows so does the spending but saving rarely do. So the questions when is the right time to start retirement planning?
Imagine a situation. You are 60 years old and it is your retirement day. You have received respect and support from your colleagues throughout your work life, but from tomorrow onwards life will be very different. You will not receive your monthly salary but your expenses still remains the same and it will increase as time goes on. You might not have enough savings but you have to spend on your children’s marriage and higher education. You might be living in company’s apartment but now you have to pay monthly rent. You might be fit and healthy in your work life but medical expenses are expected to increase with age. In today’s work everyone understands why they need retirement planning. The question is when to start, how much money you save towards it and how much money you require to manage your expenses post retirement.
If your annual income is Rs. 12lac and your necessary expenses are Rs.7.2 lac (60% of your income) then are you investing the balance 4.8 lacs? Or is the money lying in the bank being used for the such spending which you don’t necessarily need. Planning and investing for saving should come first and discretionary spending later.
Once this saving becomes a habit, then increase the saving percentage gradually. However, Investing is equally important as savings is. The early you start saving and investing, the more time the investments gets to grow and higher will be the retirement corpus.
You can see the magical difference between the two portfolios. Even if Vikram doubles the amount of savings he will have only Rs 11.78 lac and Rs 26lac at the rate of return 8% and 14% respectively. Time plays a very important role in your corpus accumulation, the more time you stay invested, higher are the returns.
Investment should be done with right mix of products depending upon risk appetite of each individual. The minimum return one should expect is to safeguard your money against inflation risk. However, if one is comfortable with market volatility then in the long run we see the performance of mutual funds, we can expect better returns in the range of 12% - 18% per annum.
It is important to lead your life in a manner you find comfortable but at the same time it is important to ensure that you would be able to live in same fashion post retirement. One should not sacrifice too much on today’s comfort for future but at the same time there is no fun in living like a king and retiring like a pauper. Maintaining the balance is the key.
INVEST PRUDENTLY
- Once saving money becomes a habit, gradually increase the saving percentage and start investing
- Time plays an important role in your corpus accumulation, the longer you stay, higher are the returns
- Investment should be done with right mix of products depending upon individual risk appetite
- There is no fun in living like a king and retiring like a pauper. Maintaining the right balance is the key
The writer is head products, AnandRathi Preferred Services
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