Retirement Planning for the Millennials
Many a times, financial advisors and experts have been found discussing about the rules of retirement. We at SBS Fin, are of firm belief that any person who touches the age of 33 must start planning for retirement and that too above & beyond the regular investments of annual financial goals like Travel, Health, Education, Real Estate etc.
How important is Financial Independence past Retirement?
Financial independence affirms a sense of freedom and individuality where each and every person, regardless of their age, is capable of generating ample income for paying forthcoming expenses. This passive income can be retrieved through savings or investment, real estate assets or general royalties from performed work in the past.
It is important that you start varying your options and integrating your savings and investments by the right time for a better future with financial independence and security.
Also, one should always participate in retirement plans which are employee-sponsored. There are many employers who contribute to the company-sponsored retirement matching plans by matching the employees’ contribution. It is important that you follow a retirement strategy and function organized and formulated.
The ideal age of looking forward to a retirement would be around 65 years of age, which is why it is important that you, as an individual, boost-start the establishment of your financial independence by your mid 30s-40s. Financially independent would sum up an individual to be completely mortgage-free, debt-free, liability-free, with sufficiently accumulated capital that would enable the person to live passively off interest and dividends and secure by all means.
Five Reasons to pursue Financial Independence:
1. Freedom of Choice
Each individual works for a living. By pursuing this method, a person will attain the freedom to live and work on their own terms in the time-phase of retirement. You reach a point in life where you will choose to work than it being a must, financially. This sense of certainty arises with financial independence, which makes it the primary reason to pursue financial independence.
2. Unemployment Insurance
This is one of the key adjuncts of financial independence. If you choose to neglect the benefits of financial independence, then you choose to be dependent on monthly paychecks, causing you to be caught in the vicious circle of insecurity that can make you prone to losing your job, being at mercy of those who trifle out instead of minimal, sufficient amounts of employment insurance, helping you jump all the hoops and grab loopholes.
3. Expenditure & Investments
Whilst adopting the procedures of financial independence, you will not have to curb your expenditure with accordance to your priorities. Extra cash flow can always be invested and spent on increasing productivity. You can invest this cash as capital at risk or give aplenty of time to foster a business idea that helps you propagate financial returns in the forthcoming future.
4. Peace of Mind
Security about the future results in incarnate peace of mind. One can spend hearty time with family, introspect and pursue their passion freely. Be in a semi-retirement phase or a retirement phase, this would help you to work with all your heart and mind. You can run small errands at your own time with no stress on your shoulders.
5. Taxes don’t appear as vexatious
As a worthy and active citizen of the country, you should be aware that tax matters a lot, irrespective of varying incomes. The thin line between being depravedly rich to financially stable differs with the concept of how and where you’re holding your assets. For example, individuals with little wealth generate a good amount of taxable income while those who pursue financial independence generate abeyant gains in the form of real-estate appreciation, hidden capital gains and profits made through tax-free accounts.
How to Approach for a Retirement Planning?
Maintain an Emergency Reserve – It is significant to maintain an emergency reserve in the ever vulnerable life situations. One must always have three to six months’ worth of living expenses in the bank account.
Get rid of Debts – One must borrow for Education as you get a tax benefit but at the same time, the debts which our generation and millennials are getting used to of in the form of credit cards must be paid off at the earliest.
Keep aside 10% of your income for Retirement, yes on monthly basis. You can also start and SIP in a mutual fund.
Allow you investments to grow in direct proportion to your income growth. Also keep the income boosters such as tax refund, bonus income, long due payouts as the annual bonus of your investment income.
The thumb rule of investments in retirement planning should be, 100- age = Your allocation to stocks. We can say, at the age of 30 – one should keep 70% of your portfolio in equities. Once retired, you can limit your exposure to stocks to not more than 25-30% of your portfolio.
You must save 25 times your annual expense. Instantly buy a health insurance plan as the difficulty of making such a purchase increases once you are older.
Allocate, Diversify and Rebalance – If you are a risk-taking regular investor, you can also enjoy go with the strategy of allocation with diversification. You need to be vigilant on quarterly basis.
Retirement Planning Habits in a Nutshell:
- One NEVER stops investing for retirement.
- In retired life, you are likely to spend the same amount as today.
- The best time to start saving and investing for retirement is with your first job or first post-high-school or post-college job. But if you haven’t started yet, then right now is the right time.
- The Retirement Corpus shall not be used for things other than your retirement.
- For the retirement accounts – Set it and forget it.
Henceforth, it is important that you realize that there is simply nobody who would guarantee you the security, financial independence and lifestyle you want at your millennial stage of life, except yourself.