A few decades ago, people never bothered about retirement, neither did they plan for it. It was all at the moment. Thoughts about retirement were inculcated when people retired only.
Slowly, people began thinking and planning for it. But it was all still very late. You must have seen your parents and grandparents think or talk about retirement just before a few years of getting retired. Now think, there is a life of approximately twenty to thirty years after retirement. How can you plan the next thirty years within a span of 2-3 years? That too, when you have been spending all your money all your life.
It is only this generation that has become more involved with Personal Finance, Retirement, and the Corpus generation. Still, if we compare this number with the total population, you’ll find a major difference. The ones who are planning for it are way ahead of the majority, and I want you to be among them.
Table of Contents :-
Why Plan Your Retirement?
Live in the moment. Forget the past, don’t bother about the future. One life. Have fun.
Yeah, we all have heard these lines, and these are true. We must live and enjoy in the present. But it does not mean that we shouldn’t plan our future.
Have you seen your future? Do you know when you’ll have an emergency? Do you have any idea of when and how you’ll need loads of money to sustain health and life? Nada! You don’t know a bit about your future. Nobody does. Therefore, it is important to have a backup for the future.
One of those future scenarios we are talking about is retirement. It is inevitable, and the sooner you start planning about it, the better you can have post-retirement life. I know people retire at old age and they don’t have much to do then. But young or old, a life is a life. Just like you plan your marriage, vacations, home, etc., you need to plan retirement in the same way.
What is the Retirement Age?
This is one of the most talked-about points, and the answer is also the main motive that will drive you to plan retirement. In general, people retire when they are aged 60. The maximum you can go is 65.
The retirement age being 60-65 means that people work all their life and retire at such an old age. At such an age, they may have money and time, but they lack the energy to do anything. This point of view has boosted this generation’s thought process, resulting in more and more people who desire early retirement.
You can check it for yourself. Go to YouTube, Google, Instagram, Twitter and search retirement. You will find a shit-load of content on early retirement and F.I.R.E.
FIRE stands for Financial Independence Retire Early. You can find more details about this here!
This is 2021, and every other youngster aspires to achieve FIRE. You can ask different people about their ideal retirement age, and you’ll get answers like 30, 35, 40, etc. And most of them plan to achieve it. In this article, I’ve planned to reveal retirement planning tips for people who are in their late teens or early twenties.
Best Methods for Retirement Planning
1. Know when to start Retirement Planning
2. Decide your retirement age
3. Figure out the amount required
4. Invest Accordingly
When to Start Planning?
The thing we are talking about is Retirement Planning, and it can be planned by investing or saving money. I have already started this a million times that – the sooner you start saving and investing, the better you can have preparations for your retirement.
So, ideally, I think that the perfect time to start this planning is when you start your first job. The age can be between twenty to twenty-two. However, its not too late, even if it twenty-three or more, because everyone’s lifetime and spans differ. But the sooner you start, the better it is.
The most prominent power in investing is – The power of Compounding. To get the most out of it, you need to remain invested for a long period. Therefore, the earlier you start, the more time you’ll have to see the magic of compounding.
You can understand compounding with this example –
Say you started investing $100 at the age of 20. You remain invested till you become 40.
Total Money Invested = $24000
Rate per annum = 12%
Returns after 20 years = $100000
Did you see? How the amount multiplied more than four times? Now, if you leave that sum for ten more years, the amount will be multiplied 6-8 times.
Decide your Retirement Age
In order to start planning, investing and deciding the amount to invest, you need to decide your retirement age first. You can go for age 60, age 50, or age 40. It can be anything. However, you don’t need to decide it in the influence of trends going on. Social media is as toxic as helpful.
You can see 13-year-old kids talking about planning retirement at age 25. Such trends are not worth being followed or frowned upon. Decide your age upon your feasibility. But understand, retirement does not mean you have nothing to do. It can also mean that you are financially independent and you do not need to have a daily job.
You can remain invested. Keep your principal amount invested and live your life on the interest you gain. Now you can have the liberty to try out other things, career, or hobbies.
Retiring at an early age is all about having the ability to do whatever you want to do. That too without worrying about a daily job. You can achieve so by your investments or by setting up multiple income streams.
Figure out the Amount Required
Say you have decided the age at which you wish to retire. Now you would have to know your corpus required for the same. Corpus is the amount of money.
Because if you don’t have a definite number in your mind, how will you plan for it? People generally assume that they need a huge amount to retire.
For example, in India, people randomly say one crore, seven crores, ten crores, etc., as the amount required by them to retire. But in reality, the amount required may be much less. The corpus required depends on one’s annual expenditure.
But don’t you worry, I have come across a rule to figure out your corpus required. Collect that much, and you are good to retire already!
The 4% Rule for Financial Freedom
Corpus Required = 25*Annual Expenses
Example – Say annual expense is 500,000, then corpus required to retire is 1.25 crore.
You can put 50% into fixed income & 50% into equity.
Withdraw 4% every year, i.e., 5 lac.
This rule works for 96% of the time in a 30-year period.
This way, the moment you get the corpus required, you can retire. Invest half and put half into a savings account. You will keep getting more money for the invested amount. At the same time, only withdraw 4% and live freely.
Now I assume you have decided the amount you need, the age at which you want to retire, and when to start this planning. All that is left is to tell you how and where to invest. I don’t bother telling you again, but I’ve already written all sorts of techniques and methods. You may want to know all those!
Refer to this section of our website, and you’ll have all your doubts cleared on Investment. I have taken into the matter of early retirement too.
However, if you do not have much knowledge about investments and finances, go for Index.
Index funds are great. Investors like Warren Buffet sing songs for Index funds. The easiest way is to close your eyes and start a SIP in some Index Fund. Index funds invest your money in all the companies listed on your country’s index.
For other options and detailed information, click on the above link and read all the articles in the Investment section. If you have some questions or queries, feel free to reach out to me – @sushrutkm
Now you know that retirement is not only at the age of 60. You can retire anytime you want, but not without a plan. I talked about all the basic steps for planning your retirement. From retirement age to the money you need to retire, I have talked about it all. All that you need to do for your retirement planning is – Figure out the age and money corpus we talked about. Start Investing as soon as possible.
If you wish to strengthen your finance game more, read more of my articles on Personal Finance here! It’s a blend of everything, from Budgets and Investments to FIRE.