Benefits of Early Retirement Planning

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The early bird catches the worm. It stands true even in the case of retirementplanning. Your early 20s are a good time to start investing, as you start earning money. However, for most of the young people, retirement planning doesn’t seem to cross their mind. Here are some reasons why you should reconsider.

The Impact of Compounding
By starting early, you give your money more time to compound. In fact, Einstein described compounding as the 8th wonder of the world. He said, “He who understands it, earns it... he who doesn't... pays it.”

A quick head start gives you the flexibility to put aside smaller amounts and still achieve a huge corpus as compared to someone who delays investments, even if he pays more!

Consider this:
           

Case 1 – Started Early
Case 2 – Started Early
Starting Age
25
35
Retirement Age
60
60
Invested for
35 years
25 years
Monthly Investment (Rs)
1000
2350
Total Amount Invested (Rs)
420,000
705,000
Rate of Return (assumption)
8%
8%
Fund Value at Retirement Age (Rs)
21,42,567
21,36,128


The example clearly shows that for achieving the same fund value at retirement (approx. Rs.21 Lakhs), the individual in Case 2 had to invest Rs. 285,000 more than the one in Case 1. Use a retirement calculator to compute the monthly amount you can invest to build a corpus for your retirement.

Save for a Rainy Day
You must have heard the story of the grasshopper and the ant. While the ant toiled and stocked up its supplies for a rainy day, the grasshopper only enjoyed his moment in the sun. We all know who had the last laugh there.

A retirement corpus can help you at all stages in life by providing you some peace of mind. While it should be your last resort, a retirement policy/ fund can be pledged to raise a short term loan for an emergency.

Support Your Dependents
Your life is an asset. Over your working years, you leverage this asset to create wealth. However, the future is uncertain. In case you are no longer there, how will your loved ones be impacted? In such scenarios, an insurance led pension or retirement plan can help your spouse or dependent parents.

However, everyone aims for different goals after retirement and hence require a different retirement corpus.

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