Why you should be concerned about Retirement planning?

A Conversation on Early Retirement Planning

Character 1 (Rahul): “Hey, Maya, have you started thinking about your retirement savings?”

Character 2 (Maya): “Not really, Rahul. I feel like I still have plenty of time. Why rush?”

Rahul: “I used to think the same way, but I recently came across some interesting points that made me rethink. The earlier you start, the better. For example, if you start saving 10 to 12% of your income now, your future self will thank you!”

Maya: “10 to 12%? That sounds doable, but how does it help in the long run?”

Rahul: “Well, consider this: If you start saving at 25, those first 5 years of savings could account for more than 40% of your total retirement corpus by the time you’re 60. It’s like planting a tree—the earlier you plant, the bigger and stronger it grows.”

Maya: “That’s an interesting analogy. But what if my income increases over the years?”

Rahul: “That’s where the next rule comes in: Your investment amount should also increase every year. Let’s say your salary grows by 10% annually. If you increase your savings by the same percentage, the difference can be huge. A 30-year-old saving 10% of a 50,000 salary would end up with around 91.5 Lacs by age 60 (conservatively at the rate of 9% p.a.). But if they step up their savings yearly, it could grow to 2.76 crore!”

Maya: “Wow, that’s a big difference! But what if I need money before I retire?”

Rahul: “Good question! It’s tempting to dip into your retirement savings, especially when you change jobs, but it’s better to transfer your PF account instead. Withdrawing early can seriously hamper your retirement goals. For example, if you keep your PF intact, it could grow to 1.84 crore over 35 years, even if you start with a basic salary of just 25k.”

Maya: “I didn’t realize how much impact early withdrawals could have. What about investing? How do I decide where to put my money?”

Rahul: “There’s a simple rule for that too: 100 minus your age equals the percentage you should allocate to stocks. So, if you’re 30, 70% of your portfolio should be in equities. As you get older, reduce the equity exposure to minimize risk. By retirement, it should be around 25-30%.”

Maya: “That makes sense. But I’m worried about saving for my child’s education. Shouldn’t that be a priority?”

Rahul: “It’s important, but you should prioritize your retirement first. You can always borrow for your child’s education if needed, but there’s no loan for retirement. Plus, Section 80E allows a tax deduction on education loans, so it’s a win-win.”

Maya: “I never thought about it that way. Thanks, Rahul! This has really opened my eyes to the importance of starting early and planning wisely.”

Rahul: “I’m glad I could help, Maya. It’s never too early to start planning for the future!”