A comfortable life after retirement is a dream everyone shares, and millennials are no exception. However, questions like how much money to save for retirement and where to invest often leave people confused. To be honest, retirement planning cannot follow a single formula, especially for today’s younger generation.
Whether you are 28 or 43, your retirement plan will be different. In reality, how much you need to save depends on how much you have already accumulated and the kind of lifestyle you want after retirement.
Let’s understand where millennials should invest for retirement. But before that, let’s look at a few important facts.
Is India Ready for Retirement?
A concerning report, IRIS 3.0 by Max Life Insurance, reveals that one out of every three individuals believes their retirement savings will run out within five years of retirement. Not only that, 40% of people have not even started investing for retirement.
Many assume their family wealth will be sufficient or that their children will take care of them. However, this mindset often becomes the biggest obstacle to retirement planning. In fact, 90% of people above the age of 50 regret not starting retirement savings earlier.
That said, there are some positive signs as well. One out of every two individuals believes that long-term savings should begin right at the start of one’s career. Additionally, 38% feel that retirement planning should begin before the age of 35.
When it comes to retirement investment options, 95% of people are aware of life insurance, and 75% actively use it. On the other hand, while 64% are aware of the National Pension System (NPS), only 16% actually invest in it.
Millennials Are Ahead in the Retirement Race!
Traditionally, it was believed that older individuals were more prudent when it came to retirement planning. However, recent surveys reveal an interesting shift. For the first time, millennials, the younger generation, have outperformed other age groups in retirement preparedness.
With a retirement index score of 48, millennials are not only better prepared for retirement but also demonstrate a stronger understanding of financial products.
In other words, the younger generation appears more aware and confident about saving and investing for retirement. More than two-thirds of millennials feel secure about their current savings and investments when it comes to retirement, significantly higher than other age groups.
This change could largely be attributed to the digital era, which has made access to financial information easier and more widespread.
How Much Should You Save for Retirement?
How much money you will need after retirement is often the first question that comes to mind while planning. However, there is no simple answer, as it depends on the lifestyle you want after retirement and the age at which you plan to retire.
One common rule suggests saving 15% of your income until retirement to reach your goal. However, the reality is that this may not be feasible for everyone.
Another approach is to save and invest enough so that you can earn at least 80% of your pre-retirement income every year after retirement.
Smart Investments for Millennials
It is often said that the earlier you start saving and investing, the better your future becomes.
1) NPS
Under the National Pension System (NPS), you can invest a fixed amount regularly, which gets accumulated into a retirement corpus. After retirement, you receive a regular monthly pension from this fund.
NPS is a disciplined and structured investment option. It not only helps you achieve financial independence after retirement but also reduces future financial worries.
For example, if you are 25 years old and have just started your professional career, and you invest Rs 5,000 per month in NPS for the next 35 years, you could accumulate close to Rs 1.5 crore at an assumed annual return of 9%.
2) PPF
If you are young and want to secure your future, PPF is an excellent option. With a tenure of 15 years and tax-free interest at 7.1%, it is a strong long-term investment scheme.
You can invest up to Rs 1.5 lakh annually, and the amount earns compounded interest every year. While liquidity is limited, the returns over 15 years are attractive. After the five-year lock-in period, you can extend the investment tenure or make partial withdrawals if needed. Additionally, after completing 15 years, you can reinvest for another 15-year term.
For instance, if you invest Rs 5,000 per month (Rs 60,000 annually) in PPF for 30 years, you could accumulate approximately Rs 62 lakh at a 7.1% interest rate.
3) SIP Investments
SIP, or Systematic Investment Plan, is one of the most effective ways to prepare for the future. Whether it is retirement or any other financial goal, SIPs are suitable for everyone.
Through SIPs, you can invest a fixed amount at regular intervals, weekly, monthly, or quarterly, in mutual funds, equities, and other market-linked instruments, without needing a large lump sum.
Earlier, SIPs were limited to mutual funds, but today many stockbrokers offer SIP options for direct equity investments as well. If you are willing to take calculated risks for potentially higher returns, you can use SIPs to invest in the stock market every month.
4) Health Insurance
Unexpected accidents or illnesses can occur at any stage of life. To protect your savings and investments from being drained by medical expenses, proper planning is essential. Health insurance is a crucial part of that planning, not just for retirement, but also for young individuals.
With health insurance, you remain protected from unforeseen medical costs. The insurer covers treatment expenses, ensuring that your financial stability is not compromised.
Wrapping Up
Retirement may seem far away, but starting early is the smartest decision you can make. Investing correctly from a young age helps ensure a comfortable and stress-free future. Choose from the options discussed above based on your financial situation and goals, and begin your retirement planning today. Remember, the earlier you start, the greater the benefits in the long run.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
