Early Retirement Planning: The idea of early retirement sounds enticing! What if someone asks you to stop working at 40 and that he/she will take care of all your financial obligations? Well, this dream can never come true, at least in India! So, planning your retirement at the start of your career is as necessary as you think about buying a bike or car at 25. Retirement is basically a long-term financial goal and young people often miss the right time to start investing. It requires careful planning and needs strict financial discipline. Generally, a person's income helps him/her to meet personal and family expenses and immediate financial goals. But these expenses shouldn't stop your future planning.
The key to a comfortable retired life is planning and saving as early as possible. When you start saving in your 20s, you have comparatively lesser financial responsibilities than the ones in the 30s and 40s. The early you begin, the longer the duration you will invest. This will lead you to generate a larger corpus along with the benefits of compounding and you could retire at just 40 or become a crorepati. It is rightly said that to become a crorepati, you need to be frugal, meaning using only as much money as is necessary. The dream of becoming a crorepati seems to be a distant one for youth or commoners. But you can become a crorepati one day. You need not invest to set up a business or invest funds in a scheme that promises high returns. All you need is financial discipline. Definitely, if you create a handsome corpus by 40 that could fulfil your needs for the rest of the life, you can afford to stop working and do whatever you want to do for the rest of your life. But can this be achieved by investing in FDs, RDs, and other means of traditional investment? Clearly, NO. To create such a massive corpus, you will certainly have to take a risk and need to take exposure to stocks or mutual funds.
Reap compound interest benefits to become crorepati
When it comes to a goal like retirement, mutual funds have outperformed other investments with higher inflation-beating returns. All you need is to choose a diversified portfolio. Through SIPs, you can plan investment in mutual funds. While in the 20s, one can begin an SIP with as low as Rs 100. You can increase this amount as your earning increases. The habit of saving since the early days promises greater compounding benefits which according to Albert Einstein is the eighth wonder of the world. Einstein explained that who understands it, earns it, and he who doesn’t, pays it. So, investing in a scheme that promises compounding benefits could never be a bad deal.
SIP Rs 40 per day can make you crorepati
According to financial trainer PV Subramanyam, also the author of 'Retire Rich', the first thumb rule is to start investing at an early age. Subramanyam explains that starting investing at an early age has numerous benefits. Besides accumulating a handsome corpus, if you have chosen the wrong funds, you have ample time to rectify. But the delay will leave you exposed to a greater risk of losing money.
He said that if 24-year-old youth invests Rs 40 per day (Rs 1200 per month), he can create a corpus for retirement. This will help him to create a corpus of Rs 4.5 crore when he/she retires at 60. Another advantage mutual funds have is the step-up option. With this, one can increase the investment amount by 10 per cent, meaning the investment amount of Rs 40 will become Rs 44 when your income increases and so on. "This way, one can generate 13-14 crore," he said.
Become a crorepati at 40
For a 20-year-old youth who wants to become a crorepati at 40, he can start a SIP of Rs 10,000. By 40, he will have invested Rs 24,00,000. Assuming that the wealth will be created at 15% interest, he would get around Rs 1 crore. (The calculation is based on the past performance of schemes. SIP in equity mutual fund has generated an average of 15% returns).
Invest in PPF
Along with SIPs, another option is to invest in the Public Provident Fund (PPF). The PPF is fully guaranteed by the Central government that provides long-term returns at a 7-8 interest rate. It comes with an initial lock-in period of 15 years. Customers are allowed to extend it indefinitely in a block of five years. The interest on PPF is compounded annually.
Suppose, you have deposited Rs 15,00,000 (Rs 1 lakh every year) in the PPF account for 15 years at a 7.1% interest rate. When this 15 years period is over, your maturity amount will be Rs 27,12,000.
So, investment in PPF can also help meet your long-term financial goals.