Retirement can be a long process. When you are young, you might strive hard every single day to ensure you reach your retirement period comfortably at an older age. Since you might not intend to retire anytime soon after you start earning, you might delay the retirement planning process. As you delay planning for your retirement, you might be left with insufficient resources to fulfil your financial requirements after retirement.
Although there is no such right time for retirement planning, you can receive relatively more retirement benefits at a young age. Planning in advance for your retirement can ensure that you not only live comfortably in the future but also achieve your post-retirement goals faster. In simple terms, the sooner you plan, the better your retirement phase.
The major advantage of an early retirement plan is a significant amount of time on your side. Since retirement might be miles away at a young age, you might have an ample amount of time to build a substantial retirement corpus. Moreover, the power of compounding can allow you to receive interest on your returns at an early stage of your life.
To help you understand the benefits of compounding in a simple way, let’s understand the illustration given below:
Neha and Sneha are fresh graduates who have landed with their first job right after college. Since both of them are 25 years, they are unsure whether to start planning for retirement or not. Since Neha is a conservative individual who looks for financial security, she has started investing Rs. 1,000 regularly in a retirement policy for 25 years. On the other hand, Sneha feels planning for retirement is too soon at the age of 25, hence splurges her income on her favourite hobbies or activities.
Although retirement seems far away for Sneha, she plans to invest Rs. 2,000 regularly for 15 years. Even if Sneha has a high investment amount than Neha, do you think she can build a substantial corpus for her retirement? Under such a scenario, the power of compounding plays a major role. While Neha accumulates a total amount of Rs. 1,897, 635, Sneha generates a retirement corpus of Rs. 1,009,152. The rate of return for both their investments was 12% only.
Due to time on Neha’s side, compounding played an essential role. Although Neha invested a small amount of money every month at a young age, she was able to gather more earnings than Sneha. Saving and investing at a younger age can be highly effective. Investing as soon as possible at a young age can bring you a step closer to achieving your post-retirement goals.
On the other hand, saving a higher proportion wouldn’t let you build a higher sum of amount for your retirement. The right way to invest in a retirement plan is to start with a small amount at a young age. As your career progresses further, you can increase your investment amount at regular intervals. Moreover, you can diversify your portfolio to attain a balance between equity and debt to secure your investment capital.
As highlighted above, an early retirement plan can allow you to build a stable future after your retirement. Additionally, it can help you to identify your post-retirement goals and take the right action to achieve those dreams. A well-thought retirement plan should be the right balance between your savings and investments.
There are numerous retirement plans in the Indian markets today. Therefore, see to it that you don’t lose yourself in the pool of available choices. Conduct thorough research, compare multiple pension plans, select the right insurer, and choose a plan accordingly. Consult a financial expert when you need help with your retirement planning process.
