With 50% of India’s population below the age of 25, more and more young people are entering the workforce. However, the awareness regarding achieving financial freedom and retirement has not yet picked up.
Mentioned below are the reasons to start planning early for your retirement.
1. It is Easier to Start Early: If you are young, it is easier for you to start building a retirement fund. When you are young, you have lesser responsibilities and higher disposable income. As time passes, it is but natural to shoulder responsibilities that may reduce your ability to save for retirement.
2. Take Advantage of Power of Compounding: “Compound interest is the eighth wonder of the world,” as quoted by Albert Einstein. Compound interest simply means earning interest on interest. Just invest your money and stay invested for a long term to understand the magic of compounding. The easiest way to do this is to start early and invest regularly. By the time of retirement, compounding may work wonders in building your retirement corpus.
3. Avail Tax Exemption: Investment in most of the investments and pension plans are eligible to avail tax exemption under section 80C. Thus, you can save income tax deductions while planning your retirement.
4. Ability to Face Emergencies: One of the many beauties of life is that it can throw surprises. Some of them might not be memorable. However, if you start planning early, you can be ready to face any emergency. You will have time to save for an emergency fund to fall back.
5. Higher Flexibility: Whether you plan to purchase a ULIP, a non-participating retirement plan or both, you can have higher flexibility to choose if a considerable amount of working life is left with you. Moreover, you can have an idea of the amount you may get from the commencement of the pension plan benefit date.
6. Rising Inflation: India has witnessed a steady rise in inflation for the last two decades. In 2020, it was 6.2%. This means that the value of Rs.100 earned in the financial year 2019-20 stands at Rs.94 in the financial year 2020-21. As a result, investing in a retirement corpus becomes difficult with growing age. The cost of saving can keep increasing with each passing year. The earlier you plan, the more can your chances of achieving your target.
7. A Better Option than FDs: The average rate of a bank fixed deposit up to 5 years was 7% in the financial year 2010-11. Ten years later, at present, it hovers around 5.3%. If you choose to keep your money in a bank fixed deposit amount, your earnings from interest may keep decreasing. While deposits are a great saving tool, they may not be a great way to build your retirement corpus. A retirement plan will help you build a corpus that can beat inflation.
When you start investing in a retirement plan from an early age, it gives you more time to build the corpus you would need in your retirement years. Moreover, you can grow your investments as you grow in your career.
