Special Story

The secret to a sweet retirement: Start saving in your 20s

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Ah, the eternal struggle between instant gratification and long-term planning. For many young adults, the idea of saving for retirement is about as appealing as a root canal without anesthesia. However, the reality is that Gen Z and millennials are facing a retirement crisis of epic proportions.

Let's crunch some numbers, shall we? According to a survey, 59% of young Indians believe that their savings will be exhausted within 10 years of retirement. So, now the question is, why are younger generations so far behind in their retirement planning? Well, there are a few factors at play. For starters, many Gen Z-ers and millennials are burdened with student loan debt, which makes it difficult to even think about saving for the future. Additionally, the rise of the gig economy in India means that fewer people have access to traditional employer-sponsored retirement plans.

While retirement may seem like light years away, it can sneak up on you sooner than you think. And the best time to start planning for it is right away. Read ahead if you need more convincing.

The magic of time

In a world where young investors are constantly in search of the next big stock gain, it's easy to overlook the power of consistent contributions to retirement accounts. A hypothetical scenario can help put this into perspective.

22-year-old Raj makes Rs 6,00,000 a year and retires at 60. He contributes 10% of his pre-tax salary towards a retirement plan. Assuming he consistently makes that 10% monthly contribution of Rs 5,000 and earns a hypothetical 5% rate of return, he’ll end up with Rs 68,19,763 at retirement.

Priya, however, contributes Rs 10,000 a month at the same hypothetical rate of return, but she doesn’t start until she turns 40. By the age of 60, she will have Rs 41,27,463 in her retirement account—just 39% of what Raj has saved.

By starting early and remaining committed to their retirement plan, one can leverage the power of compounding returns and secure their retirement.

Little drops make the mighty ocean

Many young investors complain that they don't have enough cash to invest, but even with small contributions, they can accumulate a substantial corpus over time. Let’s use Raj and Priya’s example to understand this.

Say Raj complains that he can only afford to put away Rs 3,500 a month due to his student loan and tight budget. Assuming the same rate of return over 38 years, he will have Rs 47,73,834 at retirement—still more than Priya even though his monthly and overall contributions were considerably less than hers.

Unlike this hypothetical scenario, investment returns aren't always steady, and there will be fluctuations along the way. But with enough time on one's side and a disciplined approach, even small, but consistent contributions can help ensure a financially secure retirement.

Health is wealth

Emergencies can strike without announcement, leaving people and their families in a lurch. Moreover, with rising healthcare costs, it is always better to be prepared and have the safety net of insurance. Thankfully, there are plans in the market that offer the benefits of both investment and insurance. You can start saving for your retirement and also get financial protection against unforeseen circumstances, with the same plan.

Financial awareness goes a long way

Knowing where to invest can create a huge difference in your retirement corpus. We are sharing a few recommendations to help you get ahead of the curve. Gen Z-ers and millennials, please make a note.

  • Annuity plans

An annuity is a pension plan that provides a regular income for life against a lump sum investment. This investment can be paid out monthly, quarterly, half-yearly, or annually, and can serve to fulfill unexpected expenses in case of emergencies. One of the key advantages of an annuity plan is that it allows you to lock in the current interest rate for life, making it a reliable option for long-term retirement planning. Unlike other government pension schemes that have investment caps, there is no investment limit for annuities. Additionally, in the event of the policyholder's demise, the annuity plan also acts as a term plan, providing a lump sum payment to the spouse.

  • Guaranteed return plans

    GRPs offer a guaranteed rate of return on the invested amount, making them an ideal low-risk investment option for retirement planning. Unlike the fluctuations that the market may experience, the returns on GRPs are fixed and can range as high as 7.2 – 7.5%. The payout for these plans is determined by the premium paid, the chosen insurance policy, and the duration of premium payments. You may choose between payouts for a set number of years or a lifelong income option. GRPs also offer tax benefits under section 80C, and the amount received at maturity is tax-free. And in the event of the policyholder's death, the nominee of the policy receives the basic sum assured amount along with bonuses (if any).

Whether retirement means a quiet cabin by the lake or jet setting across the globe, saving for it in your 20s can go a long way. So, start now.

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