HOW MUCH SHOULD YOU SAVE FOR YOUR RETIREMENT?
Although how much should you invest for your retirement is a very subjective matter, “as much as you can” is the standard answer that you may get. Also, it’s important to start as early as you can.
We all have dreams. We all say or feel – someday I’ll do this, or someday I will travel around the world, someday I’ll join drama classes or hone my skills. We spend our entire life slogging, striving, to live that someday. Isn’t it?
Your Someday Dream can be as simple as meeting your friends or dining out, or as daring as paragliding at age of 80. But how many of us actually live our dream?
Living your “someday” the way you want requires a lot of disciplined investment. It also requires creating a well-thought roadmap at an early age. Your roadmap must include all the essential factors like – how much to aim to invest each year, your financial circumstance at present, your risk appetite, your future financial goals, your current income and expense, your expected income growth, your cost of us to lifestyle, no. of dependents, your current investment capacity, etc.
The four key metrics that may help you to create your retirement roadmap are – yearly savings rate, savings factor, income replacement rate, and potentially sustainable withdrawal rate.
For instance, if you want to retire early, your investment rate would likely increase. If you aim at retiring later definitely your investment rate would generally decrease. It completely depends on how many corpora do you aim to accumulate within the defined time frame.
Aim To Invest 20% Of Your Annual Income Each Year
One of the golden rules of investing is to aim to invest at least 20% of your annual income each year. Of course, 20% is just a guideline. You can definitely invest more. Your annual investment rate may vary depending on what age do you want to retire, how much do you invest, and what’s your vision for retirement.
Here are some things that may help you to accomplish your financial goals –
#1 Start Early. Drive Slowly. Reach Safely.
The most important thing while planning your retirement is to start investing early. The earlier you start, the more time you get for your investments to multiply; this helps you beat market volatility.
If you start investing at the young age, you get enough time to accumulate enough corpus to finances your dream retirement life. Also, when you are young, you have less or no financial obligations of home or family, hence you can contribute more towards investment.
#2 Go for Money Multiplication.
While planning your investments, it is very important to invest in high-risk investment assets as they promise high growth or wealth creation. It is believed, equity investments are the best instrument to beat the inflation rate. That’s why we, at Money Multiplier, suggest investing a significant portion of your savings in a diversified mix.
Equity has historically outperformed bonds and cash over the long-term. So if you are investing for a long-term goal like retirement, it makes sense to invest in stock market or stock mutual funds.
#3Delay Your Retirement.
Our 20% investment rule assumes that a person retires at age of 60. If you don’t plan to prolong your working life, you will likely need to invest more than 20% per annum.
How Can You Get There?
The road to retirement is an on-going journey of disciplined investment. Here are five tips to start with:
- Optimize Tax Benefit. Make the most of tax-benefit investment asset class. One of the biggest benefits is that money will grow tax-free until you withdraw it in retirement.
- Maximize Your Investment by 1% to 2% Year After Year. Take up the challenge. Though it may sound small, over years it can make a big difference in your total investment.
- Build UPA Diversified Portfolio. Aim to create a diversified investment portfolio. Review your portfolio at least once in six months. Remove bad performing stocks. Make sure your portfolio is divided into the right amount of stocks, bonds, and other investment instruments to stay on track to meet your long-term goals.
Make Investment Your Priority
Keep your eye on your financial goals. Put your best foot forward and stay focused. Invest with discipline. Create a diversified portfolio, budget your income and expenses and there you will be. Bingo!