If you are fresh out of college with a job, you are one of the lucky ones who has finally “made” it. You have a salary that is expected to pay for all your dreams. But somewhere, there is a risk of losing sight of one favor that you ought to do to yourself – your retirement planning. Kickstarting retirement savings in your 20s is probably the best decision you would take in your life. But even though it is such an important step, most of us graduate quite unprepared for this. We, at CashGyan and CAGRfunds, have always advocated Personal Finance as a mandatory subject that should be taught in colleges but it is not. Fear not! We have listed out three ways you can kickstart your retirement savings in your 20s.
Save 10% of your salary
When you are just starting out, you start out pretty much with a clean slate. Except maybe an educational loan. You are at a stage where you have the luxury of planning for your life’s oncoming big expenses like higher education and wedding. This means you can better plan now for how much you want to save for retirement. It is recommended that you save 10% of your salary exclusively for retirement. Set up auto-transfers to ensure that you don’t forget moving the money every month. This could be a monthly SIP that could earn you higher interest rates or just plain transfer to another account.
Save For Emergency
Apart from retirement, ensure that you are saving separately for an emergency. If you are not saving for an emergency, you are bound to dig into your other savings. Oftentimes, we don’t have exclusive savings for an emergency. It is important that you separate it out to avoid dipping into it for expenses. It is recommended that emergency savings should be three to six months of your salary. Goal-based investing is a smart way to get this started and if you go for short-term plans, the money is accessible immediately when needed.
As it goes in life, the 20s is the best time for taking bigger financial risks as well. So, go ahead and get yourself educated in the fundamentals of investing in the right way. There is also a steadier, lesser risk option of investing in Mutual Funds. Instead of your money lying around in bank accounts earning minimal interest rates, make it work for you. Investing in mutual fund is now convenient, seamless and technology friendly with companies like CAGRfunds. More importantly, it guarantees returns, in the long run, making consistent investment an attractive form of retirement savings.
Start an NPS account
According to pfrda.org, an NPS is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account. Starting with a minimum annual contribution of INR 6000, the funds contributed by you are safely invested as per the PFRDA investment guidelines by the PFRDA registered Pension Fund Managers (PFM’s). Utmost care is taken to ensure that contributions are not affected by the market fluctuations and the amount is protected. These contributions are locked up until the age of 60 years. Even better, NPS under Section 80CCD (1b) provides a further deduction of INR 50,000 for tax saving purposes.
Achieving financial independence is a remarkable milestone that is worth celebrating. But true financial independence is achieved when you do not have to worry about times when you may not have a steady income. Retirement comes at a delicate age where you would have more than one financial obligations and medical expenses don’t make it any easier. Also, life expectancy has been increasing along with the desire to retire early. This means one is expected to live for 20-30 years without a source of income. So, think out of the box and kickstart your retirement savings in your 20s. Your older self would thank you!