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5 retirement moves to make in your 20s

Last updated on: November 27, 2012 14:50 IST

5 retirement moves to make in your 20s

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Salil Dhawan

We evaluate five easy-to-follow steps a young individual in 20s can implement to live a comfortable life in retirement.

Retirement planning is the most significant but often ignored long term goal which every individual eventually has to plan out. With short to medium term goals such as buying a house or a car, child education and child marriage holding utmost priority, planning for retirement often gets ignored.

By the time individuals start planning for retirement, time frame to accumulate required corpus is often too less leading to insufficient corpus post retirement.

1. Plan for adequate retirement corpus

This is the most significant thought process every individual has to undergo. Reaching to a retirement corpus amount will enable an individual to plan for his/her retirement accordingly. An individual should make sure inflation affect is factored in while deciding on a retirement corpus.

Courtesy: Investment-mantra.in


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2. Start investing early

This is the most simple investment mantra for a financially independent retirement. Once you have decided on a retirement corpus, make sure you start investing early, however small that amount is. Starting investing early will make sure you don't have to commit large amounts to this goal as you near retirement.

For instance, investing Rs 5,000 per month for 30 years will fetch you close to Rs 1.76 crore at 12 per cent CAGR and Rs 3.5 crore at 15 per cent CAGR.

However, if you start investing double the amount i.e. Rs 10,000 for 20 years, you will only fetch Rs 99 lakh at 12 per cent CAGR and Rs 1.51 crore at 15 per cent CAGR.

So start investing early will make a big difference in your final corpus.


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3. Start investing in diversified mutual funds

Start investing in a diversified equity fund through systematic investment plan (SIP). It is the best way to invest for your retirement.

Equity works best in the long term and since your goal is a long-term goal -- a mix of large/multi cap fund and a small and mid cap fund works best. Make sure you evaluate your portfolio every 6 to 8 months and increase your SIP amount going forward in line with your goal.

Avoid investing in sectoral/thematic funds for long-term goal. If required, an investor can dedicate separate mutual funds specifically for this goal so as to have greater clarity.


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4. Open a Public Provident Fund (PPF) account

Public Provident Fund is one of the best debt instruments for an investor to consider for a long term goal such as retirement planning. In addition, tax benefits and tax-free returns on withdrawals make investment in this instrument lot more attractive.

As a young individual, an investor should open a PPF account and start investing regularly towards PPF account as one of the instruments besides mutual funds to accumulate retirement corpus.


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5. Stay disciplined

Staying disciplined and continuing investing for a long-term goal such as retirement is a challenging task. Make sure you stay disciplined and continue investing irrespective of market downturns/upturns.

A systematic investment plan will make sure your costs get average out over time. Individuals often start investing early in their work life for retirement only to stop their investments mid way to compensate for some other goal.

Conclusion

Deciding on adequate retirement corpus (after factoring in inflation), investing early for retirement in right investment instruments such as diversified mutual funds and Public Provident Fund and staying disciplined right till the goal is achieved will lead an individual to a financially independent retirement life.


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