This Is Why You Need To Plan Early For Retirement!
Being retired is an exciting notion for many people. The idea of not having to go to work every morning is appealing. That alone can be reason enough to retire early. Hand in your notice, collect your pension and enjoy the remainder of your life.
However, it’s not as easy as it sounds though. Many people plan early for their retirement but still don’t make it because they aren’t prepared financially or don’t have knowledge about the appropriate retirement plan to invest in.
It’s never too early or too late to start planning for your retirement. However, it’s always easier to get started when you are younger. When you plan for retirement early, you give yourself more time to save and invest for a comfortable future.
With that said, let’s take a look at the various unparalleled benefits of planning early for your retirement.
What Are Retirement Plans?
A retirement plan is a specifically designed investment scheme with a single objective of providing you financial freedom in your retirement days. It requires you to put aside a certain amount of money regularly until you’re working. The accumulated corpus is then given to you when your income stops. You can either choose to receive monthly income through these plans or take away the whole amount in lump-sum, depending on your requirements. Most of the time, these plans also offer a life cover to protect your family and dependents from financial burden in the event of your unfortunate demise.
Benefits of Planning Early for Retirement
1. Various Tax Benefits
As you may already know, taxes cut a significant portion of your income. With the help of investments, you can reduce your tax burden and accumulate more money for your future. With that said, starting a retirement plan early will not only allow you to accumulate a much larger corpus than a person in their 40s but also allow you to maximize your tax savings to make the most out of your investment.
2. The Power of Compounding
There’s a reason why Einstein has abbreviated compound interest as the eighth wonder of the world. Its effect can be seen massively in investing and as long as you stay invested, it seems to reach even higher.
If you start investing in a retirement plan early, you can make the most out of the power of compounding and significantly grow your retirement corpus. Let’s understand this better with an example – let’s say two people start a SIP of Rs. 20,000 at the age of 25 and 30 years respectively.
Now, they both choose to retire at the age of 60, earning an interest of 15% per annum. The first person with a head-start of five years will invest 14.3% more than the other. However, when they reach the age of 60, their profit will be twice as much as the person who started later.
Therefore, it is always wise to start retirement planning earlier and walk away with more money in your pocket. You can also use a retirement calculator to determine the expected returns you can gain with your retirement plan.
3. Ability to Make Aggressive Investments
When it comes to investments, risk and reward go hand in hand. In simple terms, this means that the more risk you take in an investment, the higher returns you can expect from it. As you plan to invest in a retirement scheme early, you can take more risks since you don’t have many financial obligations.
This will also allow you to make more aggressive financial decisions, which in turn will help you make more lucrative returns and expand your retirement corpus even more. If you start investing in your mid-20s, it’s better to go with small-cap and mid-cap funds.
However, as time passes, it is recommended to shift towards large-cap or debt funds as they’re safer as compared to the former. Although the returns might not be as lucrative as small- and mid-cap funds, it still ensures a proper safeguard of your capital.
4. More Informed Decisions
When you plan an investment, you want to make sure that everything works as intended to enjoy peace of mind and execute things in a better way. The same applies to retirement planning as well. By investing in a retirement plan early, you can ensure that you’re not rushing the process and prevent yourself from making any wrong calls.
Additionally, the sooner you start, the better you can plan and align your investments as per your financial obligations. This will also allow you to reach your financial goals faster. Most people don’t even think about retirement before their 30s or 40s, which puts them at great risk.
Not only will the policy cost more than usual, but they also miss out on the potential time in which they could have accumulated a significant amount of funds in their retirement corpus. Therefore, make sure you begin investing in a retirement plan as soon as possible to lead a financially secure life.
5. Tackle Unprecedented Emergencies
As you grow older, your health complications also increase and you may never know when you need immediate medical attention. With a retirement corpus available at your disposal, you can easily sustain these medical emergencies without having to depend on anyone financially.
You can rely on the accumulated funds whenever you need and you’ll still be left with a significant amount of money to manage your day-to-day expenses. That’s why it is highly suggested to start planning for your retirement at an early age.
There are so many reasons why it’s important to plan for retirement early. If you have no source of income when you stop working, your standard of living will decrease dramatically. You can start planning for retirement by making contributions to a retirement plan today. It’s necessary to start retirement planning as early as possible to reap the most benefits out of it and lead a financially secure life in your retirement period.
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