When young professionals enter the job market, one of the most common mistakes that they commit is splurging money unnecessarily. They do so thinking that they will start saving later. However, it is not a wise strategy. It will be better for them to start investing as soon as possible. Investing ensures that the investors will accumulate wealth over time. One of the ways one can achieve their financial goal is to formulate a financial plan. Planning future finances ensures that the investor has enough wealth while retiring from their profession.
While planning, please make sure to note that retirement planning is a multi step process that evolves over time. To have a comfortable and enjoy a secureand funretire ment, you need to build the financial cushion that will fund it all. If you want to have a fun retirementyou need to start paying attention to the most important and probably boring part, financial planning.
Things to remember while planning for retirement:
Planning for retirement should include things like estimating expenses, calculating required after-tax returns, determining time horizons, assessing risk tolerance and doing estate planning.
Young investors can opt to take more risk with their investments, while those approaching retirement should be more conservative.
Please start planning for retirement as soon as you can to take advantage of the power of compounding.
These plans evolve through the years.So, please make sure to rebalance your portfolio and simultaneously update the estate plans as required.
Strategies that will help you to build a retirement fund:
Post-retirement phase generally does not have regular cash flow. Therefore, it is crucial for the investors that their financial plans cover that phase. Please follow the strategies listed below as they will help you to create a sound and strong retirement fund:
Make sure to have a plan:
It is important to plan for the retirement portfolio. You need to carefully analyse the projected fund requirement and have a plan to accumulate revenue over the earning age. You should be prepared for making regular investments into a specified mutual fund scheme through a systematic investment plan (SIP).Once you have registered your SIP, the investment amount is deducted from the bank account. The deducted amount is invested in the mutual fund scheme as per the SIP mandate on a specified date. The investments continue to be made across the market movements and that too without requiring any manual intervention post SIP registration. It helps the investors to average the cost of investments made over a period, commonly referred to amongst investors as ‘rupee cost averaging.’
Please start early:
As soon as you enter the job market, it is advisable to start planning for retirement at an early age. When an investor starts investing early, it gives more time for the investment portfolio to grow. For example, if one starts to invest at the age of 30, they may have 30 years towards accumulating wealth.A monthly investment of ₹10,000 for approximately 30 years may grow into the investment corpus of ₹2.28 crores, and that’s assuming the investments generate 10% annualised returns.
Please opt to invest in growth plans:
When planning a retirement portfolio, the revenue must be reinvested into the investment corpus itself. It enables investors to reap the benefits of compounding over the long term. One may consider investing in growth plans instead of dividend plans to avoid risks.
Use the systematic transfer plan (STP) to align with the portfolio risk profile:
Another important strategy is to make sure that the portfolio aligns with the investor’s risk appetite. As the retirement age nears, investments should be shifted from high-risk assets to low-risk asset classes over time. One may switch such investments through an STP, i.e., a systematic transfer plan. These plans periodically move the investments from one scheme to another. While an investor may be biased toward changing investments at the right time, timing the investments and market movements is a challenging task. STP eliminates timing bias from the investing strategy
While retirement may seem like a distant dream when you enter a job market, if you want to retire with dignity and maintain your ongoing lifestyle, you will need to plan in advance.