You will give more time to your investments to grow if you start investing early. Read on know why the 30s is the perfect time to start planning for your retirement.
It is always advisable to plan for retirement life as early as possible. In fact, it is even better if you can plan for your retirement as early as when you receive your first salary. However, if you haven’t done this planning in the 20s then 30s is the best time to start working towards your retirement life. But why 30? By this age, you would be well established in your career with a sound income. Rather than spending this income on unnecessary expenses, it would make sense to spend and plan for a life when you will not get this regular income.
Often people in their 30s delay the process of investing as they believe they have a long road ahead. But this notion is wrong. If you defer your retirement planning, then you may lose out on certain benefits. Hence, come what may start your retirement planning as soon as you hit the 30s.
Benefits Of Retirement Planning At The Age Of 30
You get the best result of compounding when you start early. It helps you in earning better returns if the investment is done for a longer duration and compounding is done frequently. Compounding re-invests your profit in the investment and makes it participate in further growth. Over a long period of time, this helps you earn great profits and create wealth. Hence, you must start early to enjoy the compounding benefits and have a sizeable retirement corpus to meet your needs then.
Let us understand this with an example. 30-year-old Mr. ‘A’ invests Rs. 2000 per month in a retirement fund for 25 years as he wishes to retire by 55. Let us assume he will get 12 percent interest compounded yearly. Then, Mr. A will get Rs. 35, 84, 014 (interest earned is Rs. 29,84,014) at 55 years. If the 12 percent interest is compounded half-yearly, then it will be Rs. 36, 93, 073 (Interest earned is Rs. 30,93,073).
On the other hand, say 40-year-old Mr. ‘B’ invests Rs. 2000 per month on the same retirement fund for 15 years as he too wishes to retire by 55. The same 12 percent interest compounded yearly is applied, then Mr. B will receive Rs. 10,02,079 (interest earned is Rs 6,42,079) at 55 years. If the interest is compounded half-yearly, he will receive Rs 10,05, 620 (Interest earned is Rs 6,45,620).
Hence, higher the duration of the investment and more frequently the compound rate is applied, higher the final amount and interest rate.
Starting Early Helps Your Investment Grow
Your retirement planning should take inflation into account. During your retirement period, you may require an income which would be four to five times more than the income you now need now to run your monthly expenses. Hence, you need to invest in a product that is capable of beating inflation in the long run and give you the required corpus for retirement.
Investing in Mutual Funds and equity over a long period can help overcome these challenges. When you invest your money over a long tenure, you tide over the market risks, its volatility and make good the opportunities that come during the term. In the long run, you tend to earn higher returns on the long-term investment.
Hence, starting at 30 for retirement planning is the ideal time to do so.