When we’re between the ages of 30 and 40, our goal is to build a career, and with that, we build our income. Our income is so important during this stage because we’re dependent on it for all our living expenses. But people must start making provisions at this age so that, after 20 or so years, when the time comes to retire, they no longer must rely on their income to maintain their standard of living.
Using savings plans and investing from now onwards, you can create a large corpus at the end of 20 years that can be your source of income for your post-retirement period.
How Much Should You Invest?
If you want to move away from your salary after 20 years totally, then how much money would you need, and how much should you invest now to achieve that? If we assume that your current salary is ₹1 lakh, then we can safely say that about 30% is enough for your personal expenses. 20 years down the line, adjusting for inflation, let’s say that figure is close to ₹1 lakh. So, you need ₹1 lakh every month for your regular expenses after you retire.
To achieve this goal, you will need to put away at least 35% of your current salary into your retirement fund. In essence, you can replace your current income after 20 years by investing 35% of your salary in savings plans.
Where Should You Invest?
National Pension Scheme and Employee Provident Fund
If you’re a salaried individual, then you’re already contributing a small part of your income for your retirement via EPF. You can also register for the National Pension Scheme if you want to start a retirement fund with lower cost, very low risk, and decent returns. Keep such retirement schemes as a solid base and invest elsewhere for higher returns.
Unit Linked Insurance Plans
Unit Linked Insurance Plans are popularly used for building retirement funds because they give high returns when invested for a longer duration. You get the twin objectives of building wealth as well as getting a life cover.
You can choose your fund allocation and go for an aggressive approach when you’re younger by investing more in equity and less in debt funds. As you start gaining and become older, you can reallocate your gains to stable debt funds to protect them.
Guaranteed Savings Plans
A guaranteed savings plan is similar to ULIP, but the maturity amount is guaranteed here. This is because it is a non-linked plan.
You also get life coverage with a guaranteed savings plan. It’s a versatile plan that can be used for many goals and creating a retirement fund is one of them. Because you know exactly how much money you’ll get on maturity, this plan can be great for retirement since you can make all the calculations now and plan well for the future.
Monthly Income Plans
Monthly income plans or MIP are debt-oriented mutual funds that are best suited to generate a steady monthly income. Even though returns are not very high, the stable nature of such plans is great for retirement because you can rest assured that you’ll receive your monthly payout, which you can use for essential expenses.
In this way, you can create multiple investments with the goal of retirement, and within 20 years, you’ll have a large corpus along with monthly payments ready so that you can lead a relaxed post-retirement life.
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