Start Investing for Retirement : When planning for retirement, the truth is that the earlier you start saving, the better off you could be, thanks to the power of compound interest.
And even if you began saving late or have yet to begin, it’s important to know that you are not alone, and there are steps you can take to increase your retirement savings. “It’s never too late to get started,” says Debra Greenberg, Director, Retirement and Personal Wealth Solutions, Bank of America.
Consider the following tips, which can help you boost your savings — no matter what your current stage of life — and pursue the retirement you envision.
No matter what your age is, all the below mentioned things need to be taken care. Your age, dependency, risk factor, lifestyle, income will decide the amount.
But Hence, I will explain with all factors and the method to plan for retirement. 1 thing I will always say, don’t try to copy other’s retirement plan as each one has his/her asset & liabilities and plan should be accordingly.
Tips to Start Investing for Retirement
Term Insurance: This is 1st step in investing journey. Term insurance is not investing but risk management so that you don’t mess up your investment in times of crisis. Consider this as pre-requisite if you want to have a successful execution of financial plan and retire with a large corpus. Term insurance should be either till your financial independence or max till your retirement age. It should only be taken for earning members of family. It should be equal to 20X of your yearly income.
Health insurance: You should take family floater super top-up health insurance 1st & then individual Base insurance. Super top up should be taken 1st as lets say someone has to pay bill of 25lacs..he may blow up his entire wealth.. but if he has to pay 2lacs bill, he can manage (assuming most of us are earning decent enough).
Usually people do a common mistake of buying base insurance 1st. Ideally you should have both base & super top up health insurance. If you already have base insurance from your employer, go for super top up health insurance. As most of the companies provide 3–5lacs base insurance, buying another base insurance is stupidity. Usually I prefer 20–25lacs insurance coverage depending on affordability.
Emergency money: Park 6–12 months of expenses in Liquid/short term bonds/FD.
Now that risk management is covered, investment can be done for retirement.
Different smart options to Start Investing for Retirement
Equity/Share/Stock Market – you may buy direct stocks/mutual fund/index fund/Small case. you may consider investing in multicap mutual fund if you don’t have much idea on this. You may expect 13–15% if invested for 10yrs through SIP. Returns vary 2–5% if you are selling at the bull phase of the market.
Assuming you will be using SWP (monthly withdrawal after retirement), you can consider 13–14% returns. ELSS/Tax saver fund should only be invested for tax benefit. Consider Reading our in-depth article on How to Start Investing With Very Less Capital
Debt fund: Depending on your age, you should have some allocation to debt fund. If you don’t know how interest rate is going to move, leave the job to a fund manager and buy dynamic debt fund who will invest in short term bonds if interest rate will go up and invest in long term bonds (Gilt fund) if interest rate will go down. consider 8% return in long term.
Small percentage of Sovereign gold bonds (Can be easily redeemed in secondary market though there are minor downsides) should be there if you have a large portfolio. If you have small size portfolio, there is no point of diversification. consider 8% return in long term.
Real estate: 1st home makes sense. 2nd home for investment doesn’t make sense. Land can be bought for 15–20% CAGR returns in long term but land has issue of frauds. Hence, you may use your judgment on this. I avoid it for myself & my relatives whose money I manage.
These are the main places where you should invest. All other investments can be avoided to remove too much of noise in your portfolio which makes things cumbersome.
How Can I Start Investing With Little Money?
One of the biggest myths out there is that you need a lot of money to start investing. Wrong! The great news is that you really don’t need a lot of money to start investing. Many mutual fund companies allow you to open an account for as little as $50.
Of course, the more you can invest, the better—but you have to start somewhere. Don’t let fear keep you from taking action on your future! This is something that a trusted investment professional can help you work out depending on your unique financial situation.
Also Read 7 Common Money Traps to Avoid
What Is the Best Age to Start Investing?
Regardless of your age, you want to be financially ready to invest as soon as you can. That’s because the sooner you begin investing, the more time your money has to grow.
Take Jane, for example. If Jane is debt-free and has her full emergency fund in place, she should be investing 15% of her income. If she started investing $500 a month ($6,000 per year) at the age of 25, she could have between $3.1 million and $5.8 million by the time she’s 65 based on a 10–12% rate of return! Now if Jane waits until she’s 35 to start investing that $500 a month, she could have between $1.1 million and $1.7 million at age 65. Waiting 10 years could cost you millions of dollars at retirement!
And don’t get hung up on rate of return here. Even with an 8% return, Jane could have a $1.7 million nest egg by 65 if she started investing at age 25. That’s nothing to sneeze at! Remember, time and compound growth are your friends. Make the most of them!
Start Investing Today!
As you start investing and working with a pro, keep this in mind: Never invest in anything you don’t understand. It’s your money!
Ask as many questions as you need to and take charge of your own investing education.