You may think your 20s or 30s are too early to think about retirement. However, it may not be true for everyone. You may have to take on more and more responsibilities with age. Planning your retirement may fall on the back burner. Retirement planning in your 20s and 30s may ensure that you have a peaceful retirement without having to worry about your finances.
Benefits of Retirement Planning for Millennials
The earlier you start planning your retirement, the more time you may get to build a steady corpus for your retirement. As a millennial, here are some of the benefits of retirement planning you may consider
1. Protection against inflation
If you are saving for your retirement by simply keeping the money in the bank, it may not suffice over the years. For example, if you have saved Rs 40 lakhs over the years, its equivalent after considering 20 years of inflation, may barely be Rs 12 lakhs. The example rests on considering the inflation to be 6% per year, while in reality, it may even be higher. Having a retirement plan consisting of financial instruments providing higher returns than 6% - 8% may ensure you are covered for inflation.
2. Benefits of Compounding
The earlier you start saving, the more you may likely benefit from the power of compounding. Compounding is when over the years, you start earning interest on the returns along with the principal amount. When you start investing in your 20s and 30s for your retirement, you may be able to stay invested for a longer duration, leading to more compounding of your money. You can use a power of compounding calculator online to get an estimate of the returns you may likely get on your investment.
3. Coverage for medical costs
You may face some medical problems with the age. When you are working, it is easier to get covered for medical expenses. However, after you retire, you may struggle with your medical expenses if you do not have a sufficient retirement corpus. To avoid such a scenario, you can start saving for your retirement early on.
4. Support for your dependents
In your retirement years, you may have family members who may be dependent on you. While you may not be able to work, it may be important to have a sufficient corpus to support them. If you start saving in your 20s and 30s, you may be able to accumulate enough funds for you and your dependents to live a quality life after you retire. When you create a retirement plan, it is essential you consider the cost of living and expenses of your dependents.
5. Protection against emergencies
The nature of life may be unpredictable, making it essential to save for a rainy day. If there is any financial emergency, you might want to have enough funds to sail through the tough times. When you are working, your income may help. However, after you retire, your retirement corpus may turn out to be useful for such uncertain times. You may at least ensure your retirement corpus contains a part of funds dedicated towards emergencies.
6. Quality life after retirement
When you have worked for decades, you may want to retire in peace. There might be some hobbies and experiences you may want to pursue post-retirement. When you start saving early for your retirement, you may have the time and funds to plan effectively. You may chart a vision/map of the life you may want to live after retirement and plan your finances accordingly. You want to ensure you retire the way you want and not be compelled to compromise due to lack of funds.
7. Tax benefits
Retirement plans may be beneficial in the long haul. There are several retirement plans offering tax benefits on the money you invest in them, subject to the provisions of Income Tax Act, 1961. When you are selecting a retirement plan, you may assess the prevailing tax guidelines to know of the applicable tax benefits.
As a millennial, you may have the benefit of time since you have several working years ahead of you. Investing early on for your retirement may allow you to build a significant corpus over the years. If you are confused about the amount of retirement fund you need, you may use a retirement calculator online to get an estimate of the same.
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