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Benefits of Early Retirement Planning

By Finserv MARKETS - Sep 13,2019
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Benefits of Early investment planning

Have you dreamt of retiring a ‘crorepati’? Well, most of us do. But it is important to start early to build a large retirement corpus and live a life of financial freedom. If you have dreamt of pursuing a hobby after retirement, or supporting a good cause, or just relaxing with a good book on an expensive recliner, all that requires money and it requires good retirement planning.

Apart from pursuing your hobbies and interests, there are also day-to-day and medical expenses that increases with age. You have to factor in all that as you make your investment decisions. Again, the most essential part is to start early.

Recently, a financial website in the U.S. suggested that one should save two times their annual salary before attaining the age of 35 years. For example, if you are 25 years old today and estimate that you will be earning Rs. 12 lakh per annum by the age of 35, you should have at least Rs. 24 lakhs in your account by then. Saving, 24 lakh in 10 years may sound difficult but it’s not impossible. With disciplined investments in top-performing ULIP funds and using systematic investment plans (SIPs) in mutual funds, you can easily achieve your target.

Don’t be discouraged if you have crossed 35, you can work towards achieving your target in the next 10 years by adding a unit linked insurance plan in your portfolio. Remember, that just achieving your investment target by 35 (2 times your annual salary) is not enough; that is the starting point and you have to maintain the momentum. However, you will have a solid platform to achieve your dream of retiring a ‘crorepati.’

Why start early?

The reason why investment experts recommend starting early is because of the simple mathematics law of compounding.

Let’s say you start working at the age of 22, and finally by 25, you understand the importance of investing for the future. Assuming that you retire at the age of 65, you will have 40-years of investment window. If you just invest Rs. 5,000 per month for 40 years in an investment plan that gives you 12% annualized returns, you will have a retirement corpus of approximately Rs. 6 Crore. In case, you start your investing at the age of 30 instead of 25, your final corpus will come down to Rs. 3.25. This is the reason why you should start early and enjoy the magic and power of compounding.

ULIP plans offer average returns of 11-12% per annum. MorningStar, an independent investment rating agency, has provided 5-star ratings to several funds over the past decade. Their ratings show how some top-performing funds have offered stable and consistent returns even during times of extreme volatility and uncertainty.

In fact, some top-performing funds have enjoyed excellent ratings and provided returns as high as 25% over a 5-year investment period. One of the top-rated ULIP plans in the market, Bajaj Allianz Life Goal Assure under the Accelerator Mid-Cap Fund II, which is an equity-based fund, has given returns of 25.1% for the past five years.

Calculating the retirement corpus

To reap the benefits of investments in the golden years of your life, you must first calculate how much you will need to live a life of comfort post-retirement. You can do that by calculating your present expenses based on your lifestyle, cost of living, healthcare costs, etc. and then multiply that total by 20. Your target should be to build a corpus of that size before retirement.

Why invest in ULIP plans for retirement?

A unit linked insurance plan is an ideal retirement investment instrument because it offers both life coverage and wealth creation. Also avail ULIP tax benefits up to Rs. 1.5 lakh and the premiums that you pay are tax-deductible. Interests earned, death benefit and maturity amount are tax-exempt as well.

These plans also offer the option to buy top-ups to increase investment corpus. If your investment plan is among the top-performing ULIP funds, you can top-up your investment to enjoy higher returns and increase your fund value. Another benefit of top-ups is that it also increases the sum assured amount.

If you are planning to invest in ULIPs, consider Bajaj Allianz Life Goal Assure on Finserv MARKETS. Ranked No. 1 by CRISIL under 10-year policy terms, this plan offers 4 different investment strategies and 8 fund options with maximum tax benefits and free fund switches.

To know more on ULIP investments in depth, you can check out these blogs:

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