Widely read:
It's 8 in the morning. Mr Mehta is sitting in his garden, reclining in his armchair. He is reading the day's newspaper. The table next to him has a teacup on it, along with some snacks. He hears traffic snarls. People are rushing to work. He doesn't have to worry about that. He is retired from work and now spends his days pursuing his interests and socialising with friends and relatives. In his remaining time, he likes to sleep.
The very thought of retirement evokes pleasant memories. Most of us see retirement as a phase of life when work-related worries are over and one can lead one's life as per one's will. While retirement is indeed a period free from work-related worries, it is not necessarily a period free from 'money-related' worries. For most of us, the regular income from our jobs is likely to stop post retirement. Thus, in order to enjoy retirement, saving for it is indispensable.
Gone are the days when most people worked for the government and were paid pensions. These days, even in government jobs, one has to invest towards building one's nest egg. With increasing life expectancy, it's even more important to plan for retirement. The retired life can be as long as 30 to 40 years and with diminishing capability to engage in active work, your accumulated corpus gets even more crucial.
Retirement savings for all
The best time to start saving for retirement is when you start working. Alas, at that stage many of us don't realise the importance of retirement planning! With so many spending avenues available, saving is the last thing that comes to our mind. But consider this: if you start doing a monthly SIP of Rs10,000 in an equity fund (that returns 15 per cent yearly) when you are 23 years and keep increasing this amount by 10 per cent yearly, at 60 years, your accumulated corpus will be about Rs 40 crore.
Does this amount look magical to you? It isn't. It is simply the power of compounding and discipline. While your equity fund does the compounding for you, SIPs, short for systematic investment plans, bring discipline to your investing. They help you build a large corpus from small investments over a period.
Naturally, the earlier you start, the smaller the investment you will need to reach your estimated retirement corpus. For a middle-aged person who hasn't started investing yet, a larger SIP is needed to reach the same goal amount.
For most of us, doing SIPs in a tax-saving fund up to the tax-exempt limit (which is currently Rs 1.5 lakh yearly) can help build a retirement corpus while also saving tax. Beyond Rs 1.5 lakh, a couple of good multi-cap equity funds can do the job.
What about those who are nearing retirement and already have accumulated a corpus in some traditional savings instrument such as the Public Provident Fund? After taking care of regular income through instruments like Senior Citizens Savings Scheme, such people can move their remaining retirement corpus to a debt fund. From this debt fund, they can systematically transfer the amount to a good balanced fund over the next several months. This 'SIP' from one fund to another is called STP, systematic transfer plan. The growth in a balanced fund will help retirees grow their corpus to counter the effect of inflation.
This article was originally published on May 08, 2018.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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