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Retirement years should ideally be carefree years where you indulge in your favourite activities without worrying about the costs. These activities could be holidaying at your dream destination, buying expensive art, antiques or collectibles, showering your kids and grandchildren with gifts etc. Sounds like a dream retirement, doesn’t it? But the power to turn this dream into a reality lies in your hands and the best time to start working towards it is now.
So what is the right approach and what should one do?
Income-earning years is the time when you can save money, but most people end up spending all or most of their money without giving this any thought. The best way to deal with this is to train your mind into thinking that your earnings are at least 20% less than your actual income. This can best be achieved if you instruct your bank to automatically deduct 20% of your salary or income and to put it in a recurring deposit. This will ensure that you do not overspend or end up with a zero balance bank account at the end of every month.
The next thing you need to do is to look for the best possible way to multiply or grow this money. There are varied investment avenues and the choice would differ from person-to-person.
One factor that will govern your decision will be your age. Your risk-taking capacity will be high when you are young say in your late 20’s or early 30’s. This is the time when you can take your chances and invest in medium-risk moderate-returns products, and the daring few can even experiment with high-risk high-returns products. However, if you are an extremely safe investor then you should look for low or no-risk investment options. As you get older, you must look for extremely safe investment options that will give you guaranteed returns.
All-in-all, the safest bet to ensuring good returns and getting a large corpus of funds by the time you retire, is to maintain a balanced portfolio throughout your lifetime and to review your portfolio every few years.
Some of the investment options for a balanced portfolio are:
→ Bank Fixed Deposits
→ Company Fixed Deposits
→ Mutual Funds and SIPs
→ Gold and Gold ETFs
→ Provident Fund
→ Bonds and Debentures
→ Money Market Funds
→ Pension Plans
→ Real Estate
→ Public Provident Fund PPF – Minimum amount you can invest is Rs 500 per year and maximum amount is Rs 1 lakh per year. The interest rates on PPF have also increased to 8.6% per year.
→ National Savings Certificate or NSC – Minimum amount you can invest is Rs 100 and there is no upper limit on investment.
At the same time do not forget to invest in a life and a health insurance policy. A life insurance policy will act as a safety net and ensure that your family’s financial needs are taken care of in your absence. A health insurance cover with a critical illness rider is also a must. The reason for this is that medical treatment costs are escalating and incase of any disease or illness, the expenses can make a dent in your savings. Moreover, treatment of any critical illness like Cancer, Stroke etc can nearly wipe off your savings. And please do make the mistake of underinsuring yourself.
Remember this – Over aggressive investments can take away your hard-earned money, whereas conservative investments may not fetch great returns. The art lies in having a balanced portfolio for that dream retirement!