When you are in your 20s and 30s, retirement planning seems like a task for later years. While it’s true that you should seize every moment and make the most of your present, at the same time, it is crucial to plan for the security of your future. You will need a certain amount of money in the future to support a comfortable retirement when there is no stable source of income to maintain your lifestyle.
In the earlier years of life, financial objectives and responsibilities like purchasing a car, your first home, vacation, and taking care of family generally take centre stage. In the bid to achieve these goals, most people completely forget the importance of retirement planning. It is essential to begin retirement planning early in life if you want to live a stress-free life of leisure in your golden years. While your retirement might still be 20-30 years away, the right time to start working towards it is when you receive your first salary. If you believe that your late 30s and 40s are when you should start thinking about your retirement, then you are wrong, this will only make it difficult for you to survive your retirement phase and also prevent you from experiencing several valuable benefits.
When it comes to retirement planning, practising financial discipline and creating a savings plan tailored to your investing capacity and retirement goals is essential. You should be able to enjoy your golden years free of financial limitations. As a result, retirement planning is a critical component of financial planning.
Given that, you need to maintain an adequate post-retirement corpus to offset the aggressively rising living costs, increasing life expectancy, rising healthcare expenses, and the absence of any social security for the elderly. The biggest risk of procrastinating your retirement plan is that you may not be able to build a sizeable nest egg for your retirement needs.
Fortunately, millennials and the Gen-Z generation have time on their side, and when it comes to saving for retirement, time is a great asset. Creating a retirement corpus is a long-term financial goal spanning over decades. Many of you often delay retirement planning by waiting for the right time to invest a higher salary, more disposable income, and fewer debts or responsibilities. The best time to start saving for retirement is now; starting early gives you enough time to review your investments and realign them as per your prevailing circumstances and the inflation rate.
However, just as there are several benefits of starting your retirement planning early, there is a long list of drawbacks for not doing so. This article elucidates the importance of early retirement planning, powerful reasons why you should avoid delay in your retirement planning, and how it may impact your financial future in your golden years.
Here’s some of the most significant drawbacks of delaying your retirement planning:
1. Lower Returns from Investments
Several investment avenues can help you reach your retirement goals and mutual funds are one of them, the longer you remain invested in worthy mutual funds based on your suitability, the better are the returns. By opting for these investment avenues for your retirement in your 20s and 30s, you will be able to give longer investment horizon for your investment to sustain market volatility and deliver higher returns. Systematic Investment Plan (SIP) route in mutual funds offers the benefit of power of compounding and thus, the longer you invest, the better returns you generate. However, if you delay your retirement planning, your returns from these mutual fund investments will be comparatively lower due to a constrained investment period.
While it might not be possible for you to have a considerable amount in the earlier years of your employment for investments, it is essential to understand the purpose of retirement planning and start with whatever you can rather than delaying the decision. The early bird advantage can be significant. In order to retire rich and lead a carefree life of leisure after retirement, you should aim for an effective retirement plan.
PersonalFN believes that to Retire Rich, following a prudent approach is essential. The investment strategies you choose should be suitable and efficient to build up enough wealth for your golden years.
2. Higher Insurance Premiums
In today’s world, which is filled with uncertainties, the future is unpredictable, but retirement is evident!
Considering the uncontrollable medical inflation and the fragility of health in general, it is wise to invest in an adequate health and life insurance plan. Health insurance is an excellent way to keep your health and finances protected. Similarly, life insurance would ensure the financial security of your family in your absence (unfortunate demise).
However, rather than purchasing insurance plan in your 40s and 50s, it is better to invest in them at an early age. Purchasing a worthy insurance plan during your earlier years gives you the advantage of lower insurance premiums. As you are young and healthy in your 20s and early 30s, the premiums for these policies are at low-cost too.
Moreover, you can now find health and life insurance products like ULIP, which combine insurance with investment. If you want your insurance policies to offer some returns, you can consider these options too.
3. Missing out on Tax Benefits
Many of the retirement plans and investment plans in India also provide tax benefits. Instead of losing out a major chunk of your income on taxes, it is a prudent choice to divert your money into investment avenues that are ideal for your retirement needs and offer tax benefits. For instance, investing in life and health insurance schemes, mutual funds, PPF, NPS, etc., can provide you with better tax savings under sections 80C and 80 D of the Income Tax Act, 1961.
Thus, by starting your retirement planning early, you not only get to generate considerably higher returns until the time you retire but are also able to reduce your tax burden.
4. Losing out on the opportunity of early retirement
Today’s fast-paced millennial generation is thinking about choosing an early retirement in the future to follow their passion and life goals. Retirement is when you can finally unwind and realise the much-awaited “golden sunset” goals for which there is a need to be financially well-prepared.
Not having enough savings for a comfortable retirement could be a barrier. To avoid such financial hassles post-retirement, it is necessary to design an effective retirement plan. With a sizable retirement pool, you can also retire earlier than planned and cater to other life interests in your golden years.
Thus, by understanding the importance of retirement planning from an early age and executing a reliable saving and investing strategy, it can be easier for you to reach your retirement goal sooner in life. If a financially independent and hassle-free retirement is what you are aiming for, there is no option better than starting early in life. Plant the seed now so that it provides you with the expected fruits in the future.
5. Lack of Financial Stability
If you start planning your retirement from an early age, it will ensure better financial stability in your golden years. Knowing the purpose of retirement planning and saving and investing for the same will, in a way, create a financial safety net that could come in handy if you are looking to do something of your own before or after retirement and make other plans for the future. Your goal should be to stay independent post-retirement rather than being financially dependent on your children. Consider setting aside money for your care post-retirement. Don’t expect your children and near and dear ones to be available 24×7; ensure that your retirement planning adequately covers serving your basic everyday needs.
In other words, starting early gives you peace of mind as your financial health would be more stable. Taking care of your finances and planning your retirement from an early age will help you develop a sort of financial discipline and protect you from unnecessary debt. This will also take off the pressure associated with taking quick retirement measures after you have reached the age of 40-50 years. Many times, delayed retirement planning and the last-minute rush results in severe financial mistakes that may negatively impact your financial well-being. Starting early can protect you from these costly mistakes and assist you in maintaining your financial stability.
To conclude…
As you can see, delayed retirement planning in life could lead to several drawbacks and can reduce your total retirement corpus by a large margin. Creating a retirement corpus is a long-term financial goal spanning over decades, you periodically contribute a set amount of money into worthy avenues in order for it to amass a sizeable corpus by the time you retire. Hence, your chances of building the necessary corpus are better the earlier you start planning for retirement.
Retirement planning is possibly one of the most important financial goals, and knowing how much to save or apportion towards building your retirement corpus will help during the pre-retirement phase, i.e., the accumulation stage. A retirement calculator is a tool that makes it easy and relatively simple to plan for retirement. PersonalFN’s Retirement Calculator is one of the most valuable online tools. The retirement calculator clearly shows how much money must be saved or invested each month to reach post-retirement financial goals. It is never too early to start planning for your retirement. Once you have calculated your retirement corpus, by focusing on the current and possible future expenses, smartly plan to invest worthy mutual funds as per your suitability that can help you create inflation-beating returns and attain your targeted retirement goals.
Therefore, it is pertinent to starting saving for your retirement early to have your money work to your advantage later in your golden years. Start small, start early, and make your retirement journey a smooth one!
