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Unlike the old days when retirement planning was a concern for 50-year-olds, millennials today are thinking way ahead. With the traditional mindset becoming a relic, smart financial planning to safeguard life after retirement is gradually becoming popular. However, even though millennials wish to retire early or start retirement planning, they often lack the right approach. If you are a millennial stuck with your finances, then keep reading to find out how smart financial decisions can ease retirement planning.
Did You Know that almost 60% of retirement policy purchasers are below the age of 40? This hints at how Indian millennials are planning smartly for the future.
A Millennial’s Guide to Smart Retirement Planning
Focusing on retirement planning at an early stage of life is rarely a bad decision. Let’s understand how you can take smart financial decisions to start your retirement planning early:
- Know Your Retirement Goals and Responsibilities
Every individual has a different dream of the kind of retirement life they want. At the same time, some have responsibilities that need to be taken care of. Knowing your retirement goals and responsibilities is the first step. Whether you want to settle in a different city, buy a house, fund your children’s education and marriage expenses or pay off debts, evaluating these factors is crucial.
Did You Know that a recent survey suggests that around 43% of youth under the age of 25 wish to retire between 44-55 years of age.
- Maximise Savings and Build Wealth
As a millennial with a regular flow of income, this is just the right time to start your retirement planning. Focus on maximising your savings and building wealth. Here’s how:
- Analyse Your Savings: Analyse how much money you have been able to save so far and whether or not it is bringing you closer to your retirement dreams.
- Invest in Retirement Plans: It’s time to get your money to work for you. Retirement investment plans like Public Provident Fund, Debt Mutual Funds, National Pension Schemes, etc, can help build a sizable corpus and ensure an income source even after retirement.
- Update Your Health Insurance: In this economy, where medical inflation keeps rising, it is important to update your health insurance to ensure you have adequate coverage. This protects you from depleting all your savings on medical bills in the future.
- Diversify Your Money
If you are considering an investment in market-linked instruments, make sure to diversify your investment. Diversification protects your investment portfolio from a severe hit by balancing the loss in one asset with assets of opposite market position.
- Take Inflation into Account
Smart retirement planning requires you to take inflation into account. Whether you are focusing on maximising your savings for retirement, purchasing health insurance or investing in a retirement plan, make sure to evaluate the inflation coverage.
- Find the Right Retirement Plan
As a millennial in today’s time, you are in luck because there are several retirement plans that you can invest in, even with a small amount. Here are some options you can explore:
- National Pension Scheme
National Pension Scheme is a government-backed retirement plan that helps build a sizable corpus for retirement and generate a regular flow of income. Upon retirement, you are allowed to partially withdraw funds, and the remaining is paid out to you as a monthly pension.
- Public Provident Fund
A public provident fund is also a government-backed savings instrument. These funds offer impressive interest rates that are revised quarterly by the central government. PPFs come with a lock-in period of 15 years. An investment made towards PPF is eligible for tax benefits under Section 80C of the Income Tax Act.
- Mutual Funds
Investing in mutual funds is a smart financial decision for retirement planning. Typically, mutual funds are known for offering returns of 12% to 15% annually. Investing in mutual funds in the long run can help you benefit from compounding and building a sizable corpus.
- Unit Linked Annuity Plans
Unit-linked annuity plans combine the benefits of insurance, investment and retirement planning. A portion of the premium you pay goes towards building life cover, and the remaining is invested in a basket of assets. Upon maturity, you can partially withdraw some amount, and the remaining amount is used for annuity.
- Tax-Free Bonds
Investing in tax-free bonds is a smart way to generate a regular flow of income after retirement. These bonds offer impressive interest rates that are exempt from tax liabilities.
- Bank Deposits
You can maximise your savings and focus on wealth creation by starting with bank deposits. These are traditional and simple savings options that typically provide steady returns over the years.
Summing Up
Retirement might seem like a distant dream, but starting early has several advantages that you do not want to miss out on. Start by understanding your retirement goals and responsibilities, and investing even a small amount in your choice of retirement plan. If you haven’t already started planning for your retirement, this is your sign to make smart financial decisions today to protect your future tomorrow.
Simon
