At one point or the other, we all have to start building a fund for our retirement lest we are left wanting in the golden years of our lives. In a previous article (link to investment and inflation), we explained the effect of inflation on your investments. We all understand the value of our savings today would be almost 50% by the time we retire and the cost of living would almost be double. This clearly indicates the importance of prudently calculating how much we’d need in the future and start building that corpus as soon as possible.
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Saving for retirement is the last priority after all other responsibilities such as the education of children, their wedding and other such occasions. This means that one could start saving small quite early in life to reap benefit from the magic of compounding over the years.
While various pension schemes such as ULIPs, NPS, PPF, EPF and Mutual Funds are available for investors, it is the equity fund investments that have shown the greatest returns over a longer period of time historically. Though, investing in equity has risk associated with it, which can be mitigated by diversifying the portfolio and including debt funds in it as well.
Before you start investing, ask yourself the following questions:
- How many years have you left for retirement?
- How many years due to expect to live in retirement (life expectancy)?
- What is the monthly amount you would require to meet your current lifestyle?
- How much savings do you have?
- What is your risk appetite?
Once you have answered these questions, use an online calculator to know how much you need to invest to build the corpus that you need when you retire. It is a good idea to get in touch with an experienced wealth advisor such as Dr. Celso to get genuine advice for getting the max out of your investments.
Once you have a financial advisor to guide you, you can safely invest in mutual funds keeping in mind your risk appetite. When you are young, it is good to have more of equity funds in your portfolio as your risk capacity is high. As you age, you must have a systematic transfer plan to move your investments to debt funds and once you retire, the risk profile should be zero.
Also, do not underestimate the power of small disciplined savings through SIPs for your retirement. Small investments through SIPs over a period of 15-20 years will add a huge amount to your retirement fund.
A good retirement plan should have the following characteristics:
- Investment in equity not based on your age, but on your risk appetite and financial goals.
- Tax free returns and tax benefits during the course of payment.
- Option to invest in equity even after retirement.
- Systematic transfer to less risky portfolio at later age.
There are two keys to smartly save for the golden years without feeling a pinch today – starting early and picking the right fund!
Remember, saving now is the only way to achieve a worry-free life in your retirement. Act now to build a safe future for yourself and your family.