Planning for retirement is crucial because when you get old you are going to need more money to retire than you need now to get through the month. People often do not realize the importance of financial planning until they hit the age of 50. A retirement planning corpus is supposed to be sufficient enough for the investor to take care of all their post retirement expenses. But how will you be able to build a commendable retirement corpus if you start planning for retirement at the age of 50? This will limit your investment horizon and you may not be able to build the desired retirement corpus.

Remember that when you retire, your regular monthly income comes to a standstill, but life goes on. So to ensure that you do not have to compromise on the lifestyle you have adjusted to make sure that you save enough.

How to plan for retirement?

If you want to build a retirement corpus that is more than Rs. 1 crore, do not worry it is achievable. Do not worry, this sum may seem unachievable at the beginning but can be targeted through systematic long term investing. But first investors must decide where to invest their money for building the retirement corpus. One way can be with solution oriented schemes like the retirement savings fund.

A retirement savings fund is a hybrid mutual fund that usually comes with a lock-in period of five years or till the investor attains the age of retirement (whichever is earlier). For those who do not know, a hybrid fund is a mutual fund scheme that invests in multiple asset classes like equity and debt. Thus, these funds are known to have a well-balanced portfolio that takes risks to generate higher returns and at the same time offers the much needed cushion and downside protection.

A retirement savings fund might be able to generate better returns than any other conventional retirement scheme. However, investors should not wait till they are just a few years away from retirement to start their investment journey. Also, since you will be investing in a retirement fund for more than 15 to 20 years, you need to consider investing in the retirement scheme of your choice via the Systematic Investment Plan (SIP).

Why start a SIP in a retirement mutual fund?

For those who do not know, a Systematic Investment Plan or SIP is a simple and easy way to ensure that you save and invest a fixed sum regularly. Through SIP, one can start by investing low, and then once they are convinced that the fund is ideal for them, they can increase the monthly SIP sum to ensure that they are saving enough to achieve the desired retirement corpus. However, investors need to start planning for retirement as early as possible. The more years they have in hand the lesser will be the SIP monthly investment amount.

Here’s an example emphasizing the importance of starting retirement planning early

Rahul and Amit want to invest in a retirement fund so that they can build a corpus of Rs 5 crores when they retire. Rahul starts investing at the age of 30 whereas Amit starts investing at the age of 40. Let us assume the retirement fund to deliver 10 percent returns. To achieve the corpus of Rs 5 crores Rahul will have to invest Rs. 23000 per month via SIP whereas Amit will have to invest Rs. 66000 monthly to achieve the same amount. That is almost three times what Rahul will be investing to achieve the same corpus.