Why You Should Start Retirement Planning Today

As Indians, we take our financial responsibilities very seriously. Most of us have financial goals that include owning a home, paying for our children’s education and wedding, and taking care of our family and dependents. However, to build a comprehensive financial plan, we also need to allocate funds for our own retirement years.

It may seem strange to plan for retirement so early in life, but it’s actually a great time to start. Often, when retirement plans are made, the corpus is skewed towards a mandatory provident fund, life insurance policies or deposits, where the upside may be limited. However, if you invest smartly, you can secure a sizeable nest egg for your golden years, even with small investments. Timely goal planning towards your retirement will pay off in the future – and the earlier you start, the better. Here’s why:

• Your saving potential is high right now
  In the early years of your life and career, you have relatively few responsibilities. With smart financial discipline and investment planning, you can save enough even if your income is limited. In your 40s, you might have to plan for your child’s higher studies or building a house, but in your 20s, you may not have these obligations. Therefore, it is wise to start saving and investing for retirement when you’re young and have fewer responsibilities. With smart financial planning, you can manage your monthly expenses and still allocate an amount towards your retirement planning goal. You could invest in equity mutual funds every month through SIPs and increase the amount as your income grows.
• Your risk appetite is higher when you’re young
  In your 20s, you may have a higher risk appetite compared to a 45-year-old. In the early years, you can invest in high-risk and high-return equity investments that demand a long-term horizon. You can thus allocate a much higher amount towards equity investments and retirement planning.
• You can maximise the benefit of compounding
  The earlier you start, the longer you can stay invested and enjoy the benefits of compounding. In simple words, it means that the returns earned on investments in initial years earns a further return and multiply exponentially. For example, Rs. 1 lakh invested at 10% per annum would give the following returns:¹
  
  

• You can invest relatively smaller amounts for high returns
  When you start early, you need to allocate a much smaller amount towards your retirement goal than if you were to start later. For example, if you want a corpus of Rs. 1 crore at the age of 60, you need to invest ~Rs. 2900 every month (assuming a return of 10%) if you start investing from age 25. But if you start planning at age 40, you need to invest ~Rs. 14,000 every month for the same sum at 60.
• You could be free to retire early and pursue other interests
  Many of us dream of retiring early and chasing our dreams – starting a business, writing a book or travelling the world. Planning for your retirement early can help you attain a passive income from your investments to meet your expenses. With a nest egg, you can comfortably step off the 9-5 treadmill if you like, without any financial worries, and more years ahead to explore a different career or entrepreneurship.
• You will probably live longer than your parents' generation
  With advancements in medicine and technology, India’s overall life expectancy at birth has gone up from 49.7 in 1970-75 to 69.4 in 2014-18. While this is good news, it also means that you will need a higher retirement corpus that can last through more years of retirement. 
• You will have to beat rising inflation
  Inflation eats away the value of money over time. Consider the way petrol prices have risen over the years, from Rs. 5 per litre in 1980, Rs. 40 in 2005 to over Rs. 100 in 2022! In simple words, inflation increases the cost of living and price of eatables, consumer items and general goods and services in the economy. Without a comfortable retirement pool, you risk outliving your savings and being financially dependent on your children. The only way to beat the impact of inflation is to start early and invest in high-return equity investments.
• You will have to contend with rising healthcare expenses
  While retail inflation in India is 4-6%, medical inflation is twice that. The cost of medicines, treatment, diagnostic tests and hospitalisation has been on the rise over the years. Your medical expenses will be higher in retirement, which means you need to start retirement planning early and invest diligently for those years. It’s better to buy a health insurance plan in the early years when you are healthy and the insurance cost is low.
• You must be prepared for anything
  Life is uncertain – illness, accidents and unexpected expenses can arise anytime, throwing your plans and goals into jeopardy. It is always prudent to save from the day you start earning, so that you are prepared for any financial or personal crisis. Get a health insurance and life insurance policy to cover any loss of income due to disability or death.