Why Should You Start Saving for Your Retirement?

Saving for retirement in your 20s or early 30s may not be a priority for many of us. However, there will be a time in our lives when we need to stop working, causing the steady stream of income from our salaries to come to a halt. Some may prefer to retire early, some may like to work in their golden years, while others may need to or want to retire when they reach their 60s. Whatever your preference may be, developing the habit of saving and creating a financial plan may help to secure your present and your future. A growing savings account may give you peace of mind and financial independence.

To start saving money for retirement, it can be helpful to review your assets and future needs, and set your short, medium, and long-term goals accordingly. Creating a suitable retirement savings plan at an early age can increase the chances of reaching financial stability at a young age. Also, investing in retirement and pension schemes can help you earn interest, enabling you to potentially grow your money as well.

Reasons to Begin Saving for Retirement

Everyone has different priorities when it comes to their financial goals and obligations. Some of the common reasons to start saving money for retirement are discussed below:

• To be Better Prepared for Emergencies: The uncertainties in economic conditions, job security, health condition and family wellbeing, among others, are important factors that you need to consider while saving for your present and future. To safeguard yourself from the potential financial impacts resulting from such uncertainties, you may want to create an emergency liquid fund and purchase adequate health and life insurance policies for yourself and your family members. Creating a retirement savings plan could also ensure comfort and stability during your golden years.
• Smooth Transition into Retirement Life: Creating a comprehensive retirement wealth management plan may help you better enjoy your retirement life. You can get the help of financial experts or wealth managers to better understand the investment options and plans that are suited for you.
• Benefits of Compound Interest: Compound interest is the interest that is earned not only on the investment amount but also on the interest which was previously earned. In financial products that offer compound interest, the interest is reinvested instead of being paid out. Also, the investments that compound interest monthly or quarterly, can grow faster than investments that compound annually. Hence, choosing to invest in a financial product that offers compound interest can help maximise your returns over the long term.

How Much Does It Cost to Retire?

There are various possible expenses that you may incur when you retire, making it essential to plan for them. Some of the common expenses that you may incur during your retirement years can include:

• Housing and living expenses
• Healthcare expenses
• Transportation expenses

Things to Keep in Mind While Saving for Your Retirement

As you age, the challenges of securing your future and building a nest egg for your retirement can be abundant but not insurmountable. Here are some tips to help you retire in style and comfort:

• Planning For Your Post-Retirement Lifestyle: Whether you plan to spend more time with your family during your retirement or travel the world, the amount of money that you intend to save for your retirement should be in line with the type of lifestyle you wish to lead post-retirement. If you have a spouse, you may also want to consider their retirement plans for a more accurate estimation of how much you may need.
• Plan for Inflation: Economic policies and the rates for various goods and services around the world can change with time, so you may want to build your corpus to keep up with inflation. Investing in equity funds and/or inflation-linked bonds rather than government bonds or cash deposits can you help keep pace with inflation. You can consult a portfolio manager to get a better understanding of the financial products that you can invest in to beat the effects of inflation.
• Plan for Emergencies: During the course of your life, you may meet with unexpected circumstances that may deplete your savings if you do not plan for them. Changing jobs, losing a job, hospital-related expenses, home repairs and property maintenance, are some of the potential emergencies that you need to plan for. Factors like your financial portfolio, share market movements, economic policies, property rules, and tax rules can affect your savings and returns as well.
• Test the Rule of 72: The "Rule of 72" helps you understand the amount of time it will require for your investment to double in value, depending on the fixed annual rate of interest it can generate. So, for a financial product that offers about 6% fixed rate of interest, dividing 72 by 6 gives you 12, which is the number of years it will take for your initial investment to double in its value. The "Rule of 72" can help you calculate whether you are on track to reach your financial goals.
• Start Saving: Depending on your time horizon, financial goals, and probable life expectancy, you need to start building your retirement corpus to ensure a comfortable life in your golden years.

Planning for retirement and starting to save in the early years of your career can help you achieve your retirement savings goal. However, if you are nearing retirement and haven’t saved up enough, it’s still not too late – you can start saving more each year and explore the various financial products that are available to you to build your savings. You may also consider seeking out a financial expert to understand your options and the amount you need to save to enjoy a comfortable retirement.

Frequently Asked Questions

How much should you save for retirement?

Depending on your financial goals, your retirement savings should be able to provide at least 70% to 90% of your pre-retirement annual income so that you can lead a comfortable retirement life.

What are the benefits of saving for retirement early?

Saving for retirement at an early age has several benefits as it gives you more time and potential to accumulate wealth. Also, when you invest early and stay invested for the long term, you can take advantage of compound earnings.

When should you start saving for retirement?

There is no rule of thumb when it comes to saving for retirement. However, the earlier you start saving for retirement, the more time your funds will have to grow. As the years pass by, your retirement draws closer, so you shouldn’t delay saving and investing for your golden years. Whether you are in your 20s or your 40s, starting to save today can help you build your retirement corpus.