Plan your Retirement when you earn 

                                        by Rajeev Pathak

                                            Photo courtesy by Ketut Subiyanto in Pexels

Plan your Retirement when you earn, this is the topic of my today's post. Retirement is a situation that most of us would like to hate. We would also like to avoid and defer it, if possible. Though it is inevitable, it is still possible to live life the way, we like even after retirement from work. How we will explore this in the following paragraphs.

Nitin is a young man in his thirties and recently joined an IT major at Gandhinagar. I asked him a direct question about what he thinks about retirement planning. As expected, he replied, “I have plenty of years to go, why bother about retirement”. It is a fact that most of us think like Nitin.

Retirement Planning is a must for all of us for the following main reasons;

i)                 To maintain our living status even when we will not be working,

ii)               To meet our financial goals like buying a house, children’s education or marriage

iii)              As inflation is ever rising, the cost of our goal may be many times more than what it is today

iv)             To meet with any contingent liability.

We work hard to earn the money. Let our money also work hard to give us adequate returns. An ideal investment should provide me Safety, Liquidity, and adequate, Tax-Free Returns.

Being an ex-banker myself, I know that Bank or Post Office  Savings Bank deposits or Term Deposits provide us Safety and Liquidity. But these products are not able to give us tax-free and adequate returns. If we take into account the rate of inflation, our returns from such traditional deposits may go negative.

So investment in Mutual Funds is the only answer. There is a saying in the Wallstreet that, money never sleeps. By investing your savings you will make profits, the profits re-invested will get you even more profits. This will go on and on till you remain invested; in finance parlance, this is known as compounding.

If you start young, your investments can compound over a longer period of time. By the time you retire, you will realize that the investments made in your twenties and thirties grew much more than the investments made in your forties and fifties, even though you may have actually invested more in the later years of your working life; this is the magic of compounding.

Let us illustrate with the help of an example. Suppose you are 30 years old and need Rs 3.5 crores at the time of your retirement (say at the age of 60). You can achieve this goal by investing just Rs 5000/- every month assuming an annualized return of 15% over your investment horizon.

Investment started at the age of 30	Your Wealth at the age of 40	Your Wealth at the age of 50	Your Wealth at the age of 60
5000/- Per Month	13.93 lacs	75.80 lacs	3.51 crore

With a Rs 5000/- monthly investment begun at the age of 30, you will be able to accumulate Rs 3.51 crore by the age of 60. You can see that the investment value is growing exponentially, demonstrating the power of compounding.

Over a long investment period, the power of compounding is highest in the equities. When you are young, you should invest most, if not all, of your savings towards retirement in the equities in a systematic way. 

Equity mutual funds are the best investment products for creating wealth in the long term, says renowned market expert Mr. Dwaipayan Bose. Investing systematically through monthly Systematic Investment Plans (SIP) will keep you disciplined in an auto-pilot mode. SIP will also help you to take advantage of volatility in asset prices automatically through rupee cost averaging. Those who join late this drive will have to save more to accumulate the same corpus within the above time frame.

So, Writing on the wall is clear, ‘You must plan your retirement today as tomorrow will be too late.’

Disclaimer

म्यूचुअल फ़ंड में निवेश बाज़ार के जोखिम (Market Risk ) / उतार-चढ़ाव (volatility) के अधीन हैं.

Past performance may or may not be sustained in the future.

Mutual Fund Investments are subject to market risks, read all scheme-related documents carefully.

For any queries/feedback, the author may be reached by email to : 

boirajeev@gmail.com