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Five golden rules for retirement planning

Author: Team Finapolis/Sunday, March 25, 2018/Categories: Financial Planning

Five golden rules for retirement planning

People start retirement planning at various stages of their lives. It is said the ideal time to start is from the first paycheck. But that seldom happens. Experts still suggest starting as early as possible to ensure that there is enough for the golden years. There are certain rules one can follow to ensure a comfortable and secured retired life. These are as follows:

Save a part of your income for retirement

This is the first and easiest rule to planning your retirement. Those holding a regular job will know that 12% of one’s salary goes to the provident fund account each month with an equal contribution from the employer. This forced savings ends up being most people’s retirement fund.

As PF amount is compounded every year, even a small sum becomes a substantial amount during retirement. For those working individuals not covered by the Employees Provident Fund, put away at least 10% of your income towards your retirement.

Start early

One must also remember to start saving early. The later you start, the higher per cent of your salary must go towards the fund for a comfortable retirement. 

Increase investment as income grows

Many people put off this practice in favour of keeping money for the present. But with rising inflation, it could nullify the small amount of investment made towards the retirement fund. If the percentage isn’t periodically increased with pay hike, it could seriously undermine one’s retirement planning.

For example, if a 30-year old with a salary of Rs 50,000 saves 10% each year at 9% rate, he would accumulate Rs 92 lakhs by the age of 60 years. Assuming his salary increases by 10% every year and he increases his investment too accordingly, his retirement corpus would swell to a huge amount of Rs 2.76 crore.

If you get periodic bonuses or windfalls, such as a tax refund, remember to add a small bonus amount to your nest egg.

Avoid dipping into the corpus before retirement

Usually, individuals tend to dip into this corpus to pay for various other expenditures such as buying a house, marriage of children or even medical emergencies. When money is withdrawn, it reduces the power of compounding. If the PF account is untouched despite change in jobs, a person with an average salary of Rs 25,000 can gather a corpus of around Rs 1.65 crore over a period of 35 years. Thus, it is advised to not withdraw any money from the PF account till it attains maturity.

Save for retirement, borrow for others

Indian parents tend to put their children’s needs above their own. Whether it is for their education or wedding, they have no qualms in withdrawing large sums of money from their savings to fulfill these needs. But before you spend all your money in fulfilling your child’s needs, remember that one can always avail a loan to fulfill needs such as education and weddings. An education loan is easily available, as well as loans for things like gold, travelling and car. No bank, however, will sanction a loan for your retirement. 

So it is necessary to keep you’re the money in your retirement fund solely for those years when you shall not have any earning. 

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rajyashree guha

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