June 10, 2021 5 minutes to read
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“Preparing for old age should begin in your teens at the latest. A meaningless life until 65 is not suddenly filled in retirement,” said the well-known American evangelist Dwight L. Moody.
In simple terms, retirement provision should begin when you start earning, usually when you are 23 years old. Investing early also means having enough time to build and accumulate the necessary body to live comfortably and easily without being financially dependent on anyone, including children or immediate family members.
However, most Indians do not attach great importance to early retirement planning. As teenagers, they want to indulge in the luxury of life, travel, shop and party with friends. Most Indians start planning their retirement between the ages of 35 and 40, triggered by some family mishaps such as death, accident, job loss or increased family expenses. Also, a person in their early 30s has job clarity, has raised a family, and has small savings that make planning for retirement easy.
Let’s discuss some basic retirement rules to help you feel calm and a millionaire by following meticulous planning and fiscal discipline.
Get started early with various government-sponsored financial instruments
Every tax route is different, but the compounding formula is the same. Given that the average Indian freshman earns a monthly salary package of INR 40,000, he / she is better positioned to start saving early and have fewer liabilities and responsibilities. It is advisable to open the central government’s most desirable National Pension Scheme (NPS). Investing at least INR 5,000 per month at 8 percent compound interest would help create a retirement corpus of Rs 1.13 billion by the age of 60. The monthly contribution can be increased with increasing salaries.
You can also set up a Public Provident Fund, which is the only investment vehicle with a triple tax advantage. The morning begins, the maximum benefits that you can enjoy. A minimum of INR 5,000 for a minimum of 15 years would help create a corpus of INR 1.13 billion by the age of 38. However, many would argue that investing about 25 percent of the salary at such an early stage doesn’t leave enough money to be spent on other comforts in life.
It is advisable to go for a line of credit
Hence, it is advisable to opt for a credit or credit line card. As obnoxious as it may sound, a credit card helps to serve as an alternative source of finance for daily and discretionary expenses like buying a car for the recurring bills.
A credit card also acts as a shield against unforeseen expenses without burdening monthly investments. The trick, however, is to use the card intelligently and never exceed the cost more than the income. The card can also help accumulate loyalty / credit points, cashback and various other rewards that can be used intelligently to manage discretionary spending. It also provides more liquidity and serves as an asset, especially when borrowing later in life. This habit can persist even after retirement.
Maintain a good credit rating
It is a myth that a person would not need a loan after retirement. Although 60 is the official retirement age, we all know 60 is the new 50, and we’ve seen many professionals either pursue their passion after retirement or start over with a new business idea. In such a scenario, a good credit score of 750 and above helps. However, taking out a loan in old age is not easy because the banks doubt the ability to repay. Good credit provides benefits and help in times of unforeseen circumstances or when you decide to start a new business later in life after retirement. Banks are willing to lend in such cases and one does not have to beg or borrow from children, immediate family members or friends without disrupting the pension stock.
to pay off a debt
While having a credit card is a smart idea, paying off high-interest debt sorted by salary is a more ingenious idea. Car and student loans must be paid back before retirement. However, home loans can still be continued to save taxes. The additional amount can be invested in other assets such as stocks, mutual funds, bonds, etc.
Health insurance is important
Health care costs such as regular medical checkups are likely to increase with age, and unlike other developed countries, Indians have no social security or long-term health products. There is also inflation. Therefore, there must be a separate health portfolio that is separate from retirement provision. Depending on your lifestyle and any hereditary diseases, you can opt for a comprehensive health policy early on in your career, as the options available decrease with age and the premiums are likely to increase.
Plan an alternative source of income
As the average life expectancy of people is increasing, retiring at 60 is too early. Therefore, in their late 40s, a person must begin evaluating an alternative source of income on their own. This can be a small business idea or a part-time job that can be done from the comfort of a remote location.
Check your retirement plans from time to time
Retirement decisions and plans must be reviewed annually and cannot be put into an autopilot mode. Financial planning needs to be reviewed annually to ensure it is keeping pace with inflation and rising incomes.
Also, from time to time, monitor creditworthiness. While each path to retirement and its life goals are unique, it is difficult to say how much your retirement should be. Many websites offer calculations based on the investment product they are selling; a simple rule is that it should be 20 times total gross income for everyone to enjoy a comfortable retirement life.