How to plan for your retirement in your 30s?

The 30s is the right time for anyone to start thinking about their retirement and more so because a major part of 20s goes in to spending than savings. Thinking or planning about retirement looks very distant or alien at that stage.

But being in 30s is the ideal time to become more realistic towards planning your retirement efficiently to avoid any pitfalls at a later stage of your life.

So, here are my 10 rules to plan for your retirement in 30s:

Increase your monthly PF contributions if you are in a job and if you are a self -employed person then opt for investing in NPS or PPF.  The best part about these investments is that it locks your money and make it available at your retirement thereby saves you from using it from unjustified spending. But if you can be sensible with your spending then investing in equity via mutual funds is better than traditional investment options because it offers greater returns in the long run. You need to make sure that you invest minimum 15% of your monthly savings towards retirement.

Unlike their parents’ millennials tend to save less and spend more and it may not be necessarily towards splurging but as you may be aware that most millennials want to spend on travel and spending on experiences. They may also not want to buy a house but this left them vulnerable and they may not have sufficient money or assets while they retire and specially if they want to retire in their 40s or 50s. Understand that buying a house and the compulsory EMIs which comes with a home loan makes you save out of force and thereby create an asset for long term. But do keep it in mind that buying a house may not make sense for every other person because as you must be aware renting is always cheaper than buying and you need to think through this and work on your risk profiling and spending habits and then only plan whether to buy a house or rent a house. Renting will be great and you can invest the savings in a better asset class say equity to optimize your returns, choose carefully.

Keeping money in your bank is a criminal waste of your money and you should either park it in a liquid fund if the money in the question is going to be used in the short-term else invest based on your financial goals and planning. If you keep piling cash in your account and then invest it as a lump sum, then you expose yourself against spending it unnecessarily and also losing a better timely return your investments could have made.

Since your retirement is almost 30 or 40 years ahead, you are best suited to optimise your returns by investing in equity. You can invest in SIPs and use mutual funds route to take advantage of equity.

This is the right time to learn a bit more about savings and investments and seek financial assistance if needed to become more financial savvy. And if you have a partner then it would be great if you both plan your goals, budget and the expenses you need to take care during your retirement phase. Remember that retirement planning is less investment and more to plan what you would be doing when you are free from the financial worries which is good 20/30/40 years away, so plan smartly.

In case you had an education loan which you took in your 20s then you may want to pay it off as soon as possible because once the loan is paid off then resultant savings can be allocated in a mutual fund SIP or PF contributions based on your financial planning.

You need to check the dependency your family has on you financially, more especially if you are not there tomorrow, who will cry when you die? So, make sure that you have a good term plan cover and sufficient health insurance plan to face any financial emergency.

You need to set aside minimum 6-month’s salary or business income to face any untoward financial loss.

It is a Catch-22 situation for any young person whether to spend or save because many follows the 'jindagi na milegi dobara' thought process which has to be tackled carefully. I am not saying that spending is bad or believing in this thought process this is bad. What you need to understand is the fact that this is going to be the constant battle in your life about whether to live in the moment and spend all your money or save for later, you really need to infuse the right balance between the two, spend carefully, invest smartly.

If you postpone your investments, you stand to lose the great power of compounding, let’s understand in detail with the below table:

If you look at the table, you can see that by investing only Rs. 1,444/- a month you can get Rs. 1 crore provided you invest for 30 years and the underlying assumption is that your investment will be made in any product offering 15% returns. Your mutual funds SIP can give you this kind of return in the long run.  But if you delay your investment by 10 or more years or do not invest what is needed to be invested today then the amount you need to invest monthly increases many fold as seen in the table.  So invest as early as possible howsoever small the contribution is.