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How to Prepare for Retirement Planning in Your 20s?
source: financialexpress
If you are in your 20s, it is the right time to start preparing for your retirement. It is the ideal time to think and plan for retirement, as it will benefit you later in life. Retirement planning in your 20s gives you an early start to saving and investing money for your future.
In this article, you can read about the importance of early retirement planning and how to save money for retirement in your 20s.
What is the Importance of a Retirement Plan in the 20s?
Preparing for retirement in your 20s is beneficial as it allows you to enjoy your life after retirement without financial constraints. Furthermore, starting early planning for retirement permits you to save and invest more, allowing more time for the money to grow.
Retirement planning helps you plan for any medical emergencies or other financial issues during retirement. It also ensures that you stay prepared for the future.
How to Save Money for Retirement in Your 20s?
Planning for retirement can be challenging if you are in your 20s. However, it is never too early to start saving for your future. The following are some tips to help you save money for retirement:
- Prepare a Budget: Having a budget will help you to understand how much money you need to spend and save. A budget lets you determine the expenses and limit unnecessary expenditures.
- Early Start: Starting early saving gives you more time to save and increase your money through compound interest. Furthermore, the smaller contributions also add to the total amount and help during retirement.
- Maximise Employer Contribution: Having a 401(k) plan in your 20s as an employee is beneficial as the amount is tax-free. It reduces the tax burden allowing you to save for your retirement. The amount gets automatically deducted from your salary. Furthermore, matching the employer's contribution is beneficial to claim the free money.
- Automate Your Savings: Opting for an automatic income deduction is vital as it automatically deducts a percentage of your salary before it gets reflected in your account. The amount is transferred to your retirement savings account, making it easier to save for the future.
How to Invest for Retirement in Your 20s?
1. Stock/Securities Market
Investing in stock denotes ownership of the company in a portion. It entitles you to use the company's assets and profits proportionally to your shares. However, you need to do in-depth research before investing in stocks. It is advisable to invest in smaller amounts to gain experience while investing in the securities market.2. Cryptocurrency
It is a digital or virtual currency with which you can pay for goods and services you have purchased or opted for. This currency has no actual coins or bills, so you must do online transactions. However, it is recommended to invest in small amounts in the crypto market as there is a constant fluctuation in the rate.3. Mutual Funds
Mutual funds are a collection of funds involving several investors with the same goal. The amounts get invested in equities, money market instruments, bonds and other securities. Returns generated from these securities are divided proportionately among the investors. Therefore, investing in a mutual fund is beneficial for retirement planning in your 20s, giving higher return values with low risk.How Much Should You Save for Retirement in Your 20s?
You must maintain a budget to know how much to put away for retirement in your 20s. The savings amount depends upon your income, expenses, financial goals and lifestyle.
However, there are no specific guidelines that you need to follow for saving. However, saving at least 10% to 15% of your monthly income is advisable as it will be useful in your retirement period. In case you cannot save that much, try looking for options to reduce your expenses.
What is the Example of Retirement Planning in Your 20s?
The following example defines the benefits of early retirement planning:
- Current Age: 25 Years
- Desired Retirement Age: 60 Years
- Life Expectancy: 80 Years
- Monthly Income: ₹25,000
- Expected Inflation Rate: 6%
- Expected Return On Investment (Pre-Retirement): 15%
- Expected Return On Investment (Post-Retirement): 6%
- Annual Income Required Immediately After Retirement: ₹23,05,826
- Additional Retirement Fund Which Needs to be Accumulated: ₹32,79,905
- Monthly Savings Required to Accumulate the Fund: ₹223
Disclaimer: The information in the above example is derived using a retirement calculator.
Therefore, if you start retirement planning in your 20s, you can have a comfortable future without any worry about finances. Starting early planning betters your chances of having a desired lifestyle post-retirement. You can plan your retirement with the help of savings and investing opportunities.
FAQs About Retirement Planning in Your 20s
What is the ideal income required for retirement planning in your 20s?
Does retirement planning in your 20s help in wealth creation?
What is the important thing to keep in mind while doing retirement planning in your 20s?
Should I buy life insurance or invest in retirement plans like PPF or mutual funds?
I don't have a steady income yet. Should I still consider term insurance?
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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