What Are The Best Ways To Build A Retirement Corpus?
Retirement planning is vital to secure your financial future. Here are some important tips & points to consider for your planning
Retirement planning is a critical part of personal finance that should not be ignored. Building a retirement corpus is the key to a financially secure life after you retire. The earlier you start investing, the easier it is to achieve your retirement goals. In this article, we will discuss how to build a retirement corpus in India.
When Should You Start Retirement Planning?
If you haven’t started already, the answer is quite straightforward: now. The earlier you start investing, the more time you have to accumulate wealth. Starting early also means you can benefit from the power of compounding. Compounding refers to the reinvestment of earnings to generate more earnings over time. The longer your money stays invested, the more it can grow.
Identify Your Retirement Goals
Before you start building your retirement corpus, it is important to identify your retirement goals. What kind of lifestyle do you want in retirement? Do you want to travel extensively, pursue your hobbies, or start a business? Identifying your goals will help you estimate the amount of money you would need to retire comfortably.
Your retirement corpus depends on several factors such as your lifestyle, expenses, and inflation. To arrive at an estimate of your retirement corpus, you can use any of the online retirement calculators that are available on finance-related websites. These calculators take into account factors such as your current age, retirement age, expected inflation, and estimated expenses in retirement to provide an estimate of how much money you would require.
Diversify Your Investments
Diversification is key to reducing risk and maximising returns in your financial plan. You can diversify your investments by allocating your money across different asset classes such as equity, debt, and real estate. This can be done through mutual funds, ETFs, NPS, and other investment options.
Where Should You Invest?
There are several investment options available for retirement planning in India. Here are some of the popular ones:
Equity Mutual Funds: Equity mutual funds are ideal for long-term investment goals, including retirement planning. Equity funds invest in stocks and have the potential to generate higher returns than other investment options. However, they attract higher risk.
Public Provident Fund: PPF is a popular investment option for retirement planning. It offers guaranteed returns and tax benefits under section 80C of the Income Tax Act, 1961. The current interest rate on PPF is 7.1% per annum. The investment in PPF has a lock-in period of 15 years, which can be extended for another five years.
National Pension System: NPS is a government-backed retirement savings scheme. It offers tax benefits and allows investors to choose from different investment options such as equity, debt, and government bonds. The maximum investment limit in NPS is ₹1.5 lakh per annum.
Fixed Deposits: FDs are a popular investment option for conservative investors. They offer guaranteed returns and are considered safe. However, they come with lower returns compared to equity-based investments. The interest rates on FDs vary across banks and depend on the tenure of the deposit. Senior citizens can generally benefit from higher interest rates on FDs.
Real Estate: Real estate can be a good investment option for retirement planning. It provides a steady stream of rental income and capital appreciation over the long-term. However, it comes with high initial costs as well as periodical maintenance costs.
Rebalance Your Portfolio
Rebalancing your investment portfolio is essential to maintain your desired retirement corpus and risk appetite. As you get closer to retirement, you may want to reduce your exposure to equity and increase your allocation to debt. Regularly reviewing and rebalancing your portfolio can help you stay on track towards your retirement goals. Moreover, you can periodically identify and replace some of your investments that have not been performing with other diversified options.
Building a retirement savings’ corpus requires careful planning and disciplined execution. Starting early, saving and investing regularly, diversifying investments, and monitoring your progress are key steps to building a healthy retirement corpus that can sustain you financially. However, it is also essential to consult a financial advisor before making any investment decisions to ensure that your retirement plan is aligned with your goals.