Retirement is one of the crucial phase in every one’s life. If you want to spend your rest of the life in peace without any hassles, you must have the proper planning for your post retirement life. In this aspect, saving money for the retirement life if very crucial and have the significant role for the retirement planning. In the busy world, many are not planning for the post retirement life and want to spend most of their earnings for their present day happiness. You must enjoy the current moment, also should have the planning for your future. This article explores the various points to be considered for the retirement planning. If you like this article, please subscribe to our future articles here.
1. 10% of income for retirement
- If you are salaried person in a company, the 12% of your salary will be deducted for your provident fund contribution. Investing in EPF is one of the best avenue for the retirement savings. The interest rate for the EPF is 9.5%. When you are switching your job to new company, make sure that you are transfer your EPF savings instead of withdrawing the money.
- If you are self employed, then you will not have the option to invest in the EPF fund. You must plan for your retirement. There are various investment options in the market. One among them is the PPF investment which is similar to EPF for the salaried employees. The interest rates for the PPF is increased to 8.6%.
- It is advisable to allocate 10% of your total income to the retirement fund. It is not necessary to allocate your whole retirement savings into the same investment scheme, you can diversify and invest in the various schemes depends on your age.
2. Increase your investment
If you are salaried person or self employed, you would come across annual salary hike or the increase in your total annual income. It is very common mistake that when your income increase you are tend to increase your expenses and lifestyle, but forget to increase your savings. Whenever there is any increase in your income, increase your allocation to the retirement savings. This would help you to reach the good corpus at the time of retirement.
3. Don’t withdraw the retirement savings
You would have the important expenses in your day to day life. It is very common mistake done by every one to dip into the retirement corpus for meeting the emergency expenses. It is not at all good idea to break the long term investments like retirement. For example, if you have kid’s education or buying a car, you must think of arranging the fund from outside source like applying for the loan or your short term financial plan rather then dipping into the retirement corpus.
4. Borrow for education and save for retirement
If you have expenses for the kids education, get the education loan and don’t disturb the retirement corpus. There are various sources available to get the money for kids education, but many parents sacrifice their retirement savings like provident fund to meet their kid’s education. It is not the good idea.
5. 100-your age=allocation to stocks
- In our country, there is misconception that one should not invest on the stocks for the long term goals like retirement because it is too risky. But, that is not correct thinking because stocks would give higher return than any other investments for the long term goals. But, one must consider their age before exposing to the high risk investments like stocks.
- It is general rule of having percentage stocks in your portfolio is 100- your age. It varies based on the individuals financial capacity. If you are in 20′s, then don’t hesitate to invest in the stocks. It is the right time to pick up some good blue ship stocks and invest your money. If you are over 40′s, then start reducing your exposure to the stock market because.
- Mutual Funds
- If you don’t have time to monitor the stocks, mutual funds are the good option for you. It is less risk compare to the stocks and offer good returns in the long term.
6. Power of compounding
You must understand the power of compounding in the investments. For example, you start in 2008 and want to save for retirement and If regularly invest 1 lacs every year at 15% return per Annam , the investment will be Rs 4.35 Crores in 2038 , but if you do late for 2 years and start in 2010 , it will be Rs 3.27 Crores only by 2038 , that will leave you with Rs 1.08 Crore less money. So, it is always good idea to start investing in your early age for the retirement.
7. Initial years of retirement spending
Once you are in the retirement starting stage, don’t spend in the lavish way because your savings must go for your entire life. In the initial years, take only the 5% of savings each year and later on increase the spending because there would be more medical expenses in the later stage.More on this topic: