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.

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.

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.

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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.

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.