New age millennials are all about planning ahead for stable careers. They have innovative and refreshing ideas for starting their own ventures, are up to speed with the latest developments in their surrounding and believe in smart work. Their age is on their side and they try to reach for the stars. However, when it comes to thinking about retirements, millennials are far from the concept.
Millennials believe that they are too young to worry about retirement and their life after that. After all, when one is in their 20s and 30s, why would they bother about retirement planning, right?
Wrong. Though retirement seems like a far-fetched reality, it is a reality no doubt. You should, therefore, start planning for this reality from an early age, the earlier the better. If you are wondering why retirement planning should be started at the earliest, here are some reasons to help you see light –
- So that you can benefit from compounding returns
Investments give you compounded returns which means that returns are calculated on the principal you invest as well as the returns earned earlier. This compounding of returns multiplies the returns payable if you keep your investments for a long period of time, the longer the better. For instance, if you invest INR 5000 every month in an avenue with a moderate return of 12% per annum, here’s how compounding would give you miraculous returns if investments are left for longer periods –
|Amount invested||Corpus at the end of 10 years||Corpus at the end of 15 years||Corpus at the end of 20 years||Corpus at the end of 25 years||Corpus at the end of 30 years|
|5000/month||11.50 lakhs||25 lakhs||49 lakhs||94 lakhs||1.75 crores|
So, as the term increases the corpus grows substantially.
To grow your corpus you need to give investments time to grow. You can give this time if you start early. When you start early you can give your corpus time to grow before you would need it. Time is money and the power of compounding proves to you the financial implication of time.
- So that retirement planning becomes affordable
How much corpus do you think you would require when you retire? If you factor in inflation and the decreasing value of money over time you would need a substantial amount when you retire. Say, for instance, INR 1 crore would be sufficient in meeting your retirement expenses. How much savings do you think would be required to create this corpus?
The amount of savings required to accumulate a specified corpus depends on the investment tenure. The higher the investment tenure, the smaller would be the amount that you would need to invest. Let’s understand with the help of an example –
Say you need INR 1 crore at the time when you retire at 65. Here are the monthly savings which you would need to do when you start at different ages to accumulate the corpus (assuming an interest of 12%) –
|Required Savings / month if you start investing at 30||Required Savings / month if you start investing at 35||Required Savings / month if you start investing at 40||Required Savings / month if you start investing at 45||Required Savings / month if you start investing at 50|
|INR 1500 which would give a corpus of about INR 96 lakhs||INR 2800 which would give a corpus of about INR 98 lakhs||INR 5200 which would give a corpus of about INR 98 lakhs||INR 9900 which would give a corpus of about INR 98 lakhs||INR 20,000 which would give a corpus of about INR 1 crore|
So, you see, as you delay your investments, the monthly savings required to achieve the target corpus increases. While INR 1500 is quite affordable, INR 9900 or INR 20,000 per month might not be.
Given these two reasons, you can fathom why planning for retirement should start at the earliest. There is no time like now. Even if you are young, retirement planning should feature in your to-do list so that when retirement actually arrives you would have the financial security of knowing that you have amassed a substantial corpus to take care of you.
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