Building a retirement corpus in your 30’s

Retirement

Building a retirement corpus in your 30’s

  • List your financial goals
  • Develop the habit of living within a budget
  • Make small retirement savings

When you enter your 30s, retirement seems distant and something really far off. Your immediate financial aspirations – car, vacations, house and lifestyle-related goods find top priority. You are likely to be faced with the dilemma of too many aspirations and too little money to achieve those goals. Financial assistance by way of loans helps you realise almost all your financial goals, except retirement. Retirement is the one financial goal for which there is no loan available. The earlier you internalise this truth, the better prepared you are likely for retirement.

An upside when you start on a clean slate is that you can benefit from setting up a savings and investment plan for all your future financial goals including retirement. If you are part of an organised employment structure, you would have tax efficient mandatory retirement savings which would inculcate the habit of saving towards retirement from an early age. This is perhaps the best way to start planning for the end of your working days. Even if it seems like retirement is just a distant dream, you will want to get started now to make sure you and your family are secure when you are ready to stop working.

There is no clear target that you can save towards retirement in your 30s, however you can use the thumb rule of 100 minus your age to arrive at your % equity allocation, with balance % for debt allocation; to arrive at an estimate. But, how you manage your finances and your attitude towards money will have an impact on how your retirement turns out. If you discipline yourself to save 15-20% of your income, you are set for greater things. However, if you land up living on debt to fund your immediate desires to upgrade phone and take vacations instead of saving for the future, chances are you will find it tough to face retirement.

Many youngsters think of an early retirement these days, which is not a bad thing. However, one should keep in mind that in doing so one actually reduces the number of years available to save towards retirement. This approach also results in one to fund more number of years in retirement. Suppose you start saving for retirement at 30, you have another 30 years to retirement at 60, in which time apart from you other financial goals, you also need money to meet your retirement expenses for 20-30 years in retirement.

No matter what type of approach you take to save towards retirement; it’s important you put aside as much money as you can. The more number of years ahead of you allows your investments to benefit from compounding, so, even when you start small, it will grow on its own over time. Moreover, as you get older, you may earn more and could contribute more towards retirement savings. Follow a long-term investment strategy which has significant equity allocation that you could benefit from in beating inflation and building wealth.

For instance, if you are aiming to have Rs 2 crore 25 years later; you need to invest Rs 15,074 each month in an instrument that has the potential to earn 10% returns. Even if you do not factor inflation at this moment, it is fine to make a start and factor inflation and real expenses as you get older. Being committed to retirement survey,retirement savings and investments is half the battle won when it comes to retirement savings. Stay committed to a goal and work towards it and chances are you will have the monies for your dream retirement.

Checklist

  • Set a monthly budget
  • Set a retirement target
  • Start retirement savings
  • Have adequate life and health insurance
  • Understand the impact of inflation on your savings
  • Every 5 years evaluate and check the progress of your retirement savings journey

Next steps

  1. Have a budget and savings plan
  2. Start a dedicated retirement savings
  3. Reassess your retirement target once every 5 years

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